BoJ’s Ueda: FX moves are among factors that have huge impact on Japan's economy, prices

Sagar Dua FXStreet

Bank of Japan (BoJ) Governor Kazuo Ueda said during Asian trading hours on Monday, after the release of the central bank’s Summary of Opinions, that changes in the foreign exchange (FX) market are key factors that have a huge impact on Japan's economy, and prices.

Additional Remarks

Will closely watch FX moves.

As firms become more active in raising prices and wages, impact of FX fluctuations on prices has become bigger.

FX fluctuations may affect underlying inflation through changes in inflation expectations.

BoJ will guide policy appropriately by scrutinising how FX moves could affect likelihood of achieving our growth, price forecasts as well as risks.

Want to decide monetary policy by scrutinising what implications FX, market moves could have on our goal to stably achieve our 2% inflation target.

Long-term interest rates move reflecting market views on economic, price outlook as well as views on fiscal, monetary policies.

If short-term interest rates are hiked at appropriate pace, long-term rates will move stably.

We will guide policy appropriately, communicate carefully with markets so that long-term interest rates move stably.

Market reaction

The Japanese Yen (JPY) has reacted positively to comments by BoJ Governor Ueda. As of writing, USD/JPY is down 0.26% to near 159.90.

Bank of Japan FAQs

What is the Bank of Japan?

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%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 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. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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