Yen jumps on report of Kishida flexibility on monetary policy

THE yen opened the week higher after Kyodo News reported Japan’s Prime Minister Fumio Kishida was planning to revise a 10-year-old accord with the Bank of Japan (BOJ) with the potential to add flexibility around the 2 per cent inflation goal.

The currency strengthened as much as 0.6 per cent early Monday (Dec 19) to 135.79 per dollar as traders got their first chance to respond to the comments reported by Kyodo on Saturday, citing unidentified government sources. Should they be confirmed, they would contrast with comments from Kishida in June, when he said he expected the BOJ to stick to its 2 per cent inflation target.

The yen’s been the worst-performing major currency this year as BOJ governor Haruhiko Kuroda’s insistence on buying massive amounts of government bonds meant Japan’s yields stayed low while they soared elsewhere with other global central banks hiking interest rates to combat inflation.

Kyodo said Kishida would discuss the matter with the next BOJ governor, who will succeed Kuroda in April.

Last week Bloomberg reported that Bank of Japan officials saw the possibility of a policy review next year after wages growth and any slowdown in the global economy are closely examined, according to people familiar with the matter.

“A possible revision to the BOJ-government statement has already been the theme of the market for next year” even before the Kyodo report, said Shinsuke Kajita, chief strategist at Resona Holdings in Tokyo. “But the report has still spurred yen buying because the BOJ meeting is drawing near and the relatively hawkish monetary policy decisions in the US and Europe last week had emphasised the contrast with the BOJ’s dovish stance.”

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Investors like Fidelity International, T Rowe Price and PineBridge’s Asia-Pacific Investment Grade Bond Fund all favour the yen after it was bludgeoned to the weakest level in three decades at 151.95 per dollar earlier this year. BLOOMBERG