Yen sinks to 10-month low after BOJ stresses need to keep easy policy
THE Bank of Japan’s (BOJ) leadership emphasised the need to nurture economic growth with stimulative policies due to a wide range of uncertainties, signalling it is too soon for financial markets to speculate on a near-term rate hike.
Governor Kazuo Ueda and deputy governor Shinichi Uchida used separate appearances to drive home the message that the economic recovery and price trends are too precarious to mull a policy shift. Uncertainties around wage gains and inflation are high, and therefore the goal of achieving 2 per cent inflation accompanied by wages gains has not yet “come in sight”, Ueda told business leaders in Osaka on Monday (Sep 25). Uchida cited “extremely high” uncertainties in making the case to stay patient at an event in Tokyo.
The remarks, coming after the BOJ decided last Friday to hold policy steady, appeared to be an extension of its efforts to walk back policy change expectations after Ueda’s comments in an interview with the local press prompted economists to move forward their predictions for a rate hike.
The yen drifted lower to 148.58 against the US dollar, the weakest since November. The governor refrained from commenting on currency levels while pledging to coordinate with the government on currencies, but he also said he will not target rates. “The BOJ won’t conduct policy to directly influence foreign exchange rates,” Ueda told reporters. “It’s desirable it moves in a stable manner and reflects economic fundamentals.”
Ueda stressed that the economic recovery remains too fragile for a tightening of policy. Policymakers have reached an important juncture for nurturing “the buds of change in the economy”, he said. Authorities “will pay close attention to whether moves to increase wages will continue, and whether the underpinning of private consumption from the income side will strengthen”.
The weak yen has helped spur inflation, drawing concern from the government. Prime Minister Fumio Kishida said last week that Japan would remain vigilant and take necessary action against excessive currency moves. Masato Kanda, the top currency official at the Ministry of Finance, has said he is keeping in close contact with his counterparts in the US, and both sides agree excessive moves are unwelcome.
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The governor indicated that US Federal Reserve policy is a key factor in determining global asset price movements. It is important to watch the impact of financial conditions in the US on “global financial and foreign exchange markets”, he said.
The widening interest gap between the US and Japan has dragged the yen lower since the Fed began its monetary tightening campaign. Regarding global inflation trends, price increases “are still somewhat high relative to the central bank targets”, Ueda said.
Japan’s nationwide inflation hovered above the BOJ target for a 17th month in August, with prices excluding fresh food rising 3.1 per cent from a year ago. October data for Tokyo – a leading indicator for the nation – are expected to show the trend of high inflation continuing, albeit with an incremental degree of moderation.
The governor noted that inflation is weighing on discretionary spending, a concern for Kishida’s government.
“At the moment, with price rises weighing on consumption, households’ defensive attitudes towards spending – such as shifting demand toward inexpensive products – are being observed with regard to food and other items that have seen large price increases,” Ueda said.
Kishida on Monday unveiled an outline for an economic package that will include steps to shield households from rising prices. BLOOMBERG
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