Bank of Japan (BoJ) Governor Kazuo Ueda spoke in a press conference after attending the Group of 20 (G20) finance leaders' meeting in Washington on Thursday. Ueda said that the central bank may raise interest rates again if the Yen's declines considerably increase inflation, highlighting the impact currency moves may have on the timing of the next policy shift.
Key quotes
"There's a possibility the weak yen could push up trend inflation through rises in imported goods prices.”
"If the impact becomes too big to ignore, it might lead to a change in monetary policy.”
“The BoJ will scrutinize how the Yen's declines so far this year could affect the economy and prices, and take the findings into account in producing fresh quarterly growth and inflation forecasts due at next week's policy meeting.”
Market reaction
The USD/JPY pair is trading at 154.57, losing 0.05% on the day at the time of writing.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.
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