Source: Finance Association

Bank of Japan Governor Kazuo Ueda said at the Japanese Diet on Wednesday (May 8) that if the trend of the yen has a significant impact on inflation, the central bank may take monetary policy actions to further warn of the impact of the recent sharp decline in yen on the economy.

A weak yen affects the economy in many ways, including driving up import costs and affecting demand for goods and services.

Ueda pointed out that although the Bank of Japan will not seek to use monetary policy to directly control the trend of the yen, it will carefully study the huge impact that the yen trend may have on the economy and prices.

Currency trends were also one of the topics he discussed during his meeting with Japanese Prime Minister Fumio Kishida on Tuesday (May 7), which shows that the recent decline in yen has attracted great attention from the Japanese authorities.

Possible policy actions

Ueda pointed out on Wednesday, “The act of companies setting wages and prices has become somewhat more active. Therefore, we need to be aware that the impact of exchange rate fluctuations on inflation is becoming more risky than in the past.”

He also said, “Exchange rate changes may have a significant impact on the economy and prices, so the central bank may consider adopting monetary policy to deal with it.”

Ueda's remarks are in contrast to his speech last month after the Bank of Japan's policy meeting. At the time, he said that the recent decline in yen had no direct impact on trending inflation.

This also led some traders at the time to believe that Ueda's remarks after the meeting intensified the market's expectations that the Bank of Japan would not raise interest rates for a period of time, thus accelerating the decline in yen.

Since this year, the exchange rate of the yen against the US dollar has fallen by about 10%. Up to now, the transaction price is about 155.2 yen per dollar.

Furthermore, Japan's top monetary diplomat Masato Kanda (Masato Kanda) recently issued a warning saying that Japan may have to act against disorderly fluctuations and speculation-driven fluctuations in the foreign exchange market, which strengthens the market's expectations that the Japanese authorities are ready to intervene again in the foreign exchange market to support the yen.

Kanda said that if the exchange rate can reflect fundamentals in a stable manner, then there is no need for the government to intervene. “However, when excessive or disorderly fluctuations occur due to speculation, the government may have to take appropriate action. We will continue to take a firm stand.”

Earlier, the yen had fallen to a 34-year low. Outsiders predicted that the Japanese authorities intervened for at least two days last week to support the yen.

Bank of Japan data suggests that the authorities spent more than 9 trillion yen (about 58.4 billion US dollars) to defend the yen's trend and help the yen recover from the 34-year end of 160.245 to a one-month high of 151.86.

editor/tolk