Tag Archives: BOJ

Business

Bank of Japan’s policy tweak drew rare request from government for a break

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TOKYO, Jan 23 (Reuters) – Government officials who attended the Bank of Japan’s December policy meeting were given a half-hour adjournment to contact their ministries, minutes showed, underscoring the significance of the central bank’s decision to tweak its bond-market peg.

At the Dec. 19-20 meeting, the BOJ kept its ultra-easy monetary policy but shocked markets with a surprise change to its yield curve control (YCC) policy that allowed long-term interest rates to rise.

Before the nine-member board voted on the steps, the government representatives requested that the meeting be adjourned for about 30 minutes, the minutes showed on Monday.

Governor Haruhiko Kuroda approved the request as chair of the BOJ meeting, according to the minutes.

“The government understands the matters discussed today were aimed at conducting monetary easing in a more sustainable manner with a view to achieving the BOJ’s price target,” a Ministry of Finance (MOF) official attending the meeting was quoted as saying, referring to the central bank’s inflation objective.

Another government representative, who belonged to the Cabinet Office, urged the BOJ to be vigilant about the fallout from rising inflation, supply constraints and market volatility on Japan’s economy, the minutes showed.

The two representatives did not voice opposition to the yield control tweak nor any other elements of the BOJ’s discussion, the minutes showed.

Two government representatives – one from the MOF and another from the Cabinet Office – are legally entitled to attend BOJ policy meetings and voice the government’s views on policy decisions, though they cannot cast votes.

In a news conference on Monday, Finance Minister Shunichi Suzuki said he had been briefed by the MOF representative on the BOJ’s expected decision during the adjournment.

It is rare for the government representatives to seek adjournment in the BOJ meetings, which only happens in times of key decisions such as a change in monetary policy.

For example, the government was granted an adjournment during a meeting when the BOJ introduced negative interest rates in January 2016, according to minutes of that meeting.

Under YCC, the BOJ sets the short-term interest rate target at -0.1% and that of the 10-year bond yield around 0% with a small tolerance band.

At the December meeting, the band set around the 10-year yield target was doubled to 0.5 percentage point up and 0.5 percentage point down, a move aimed at ironing out market distortions caused by the BOJ’s heavy bond buying.

Reporting by Leika Kihara; Editing by Bradley Perrett and Jacqueline Wong

Our Standards: The Thomson Reuters Trust Principles.

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Business

Asia-Pacific shares struggle for direction ahead of BoJ rate decision

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Japan’s core manufacturing orders for November slump more than expected

Japan’s private-sector manufacturing orders for November fell 8.3% compared to the previous month, according to official data.

The drop was significantly larger than Reuters’ expectations of a 0.9% decline. On an annualized basis, manufacturing orders fell 3.7%.

The private-sector machinery figures exclude orders from volatile ones for ships and electric power companies.

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— Ganesh Rao

Stocks end the day mixed, Dow falls almost 400 points

The Dow Jones Industrial Average Index fell to end the day, as Goldman Sachs shares weighed on the stock index.

The Dow lost 391.76 points, or 1.14%, to close at 33,910.85. The S&P 500 fell 0.2% to 3,990.97. The Nasdaq Composite gained 0.14% to end the day at 11,095.11.

— Tanaya Macheel

Bank of America sees a later start to the recession

A recession probably won’t start now until later in 2023 as consumer spending has been stronger than expected and the Federal Reserve eases up on the intensify of its interest rate hikes, according to Bank of America.

“We push back the timing of our outlook for a mild recession in the US economy by about one quarter given durability in consumer spending on account of strong labor markets, excess saving, declining energy prices, and easier financial conditions,” the firm said in a client note. “That said, we think the headwinds will lead consumers to reduce spending and push the saving rate higher as the year progresses.”

That puts the recession into the second quarter, driven by a an investment-led slowdown leaking to consumer spending.

After pushing its benchmark borrowing rate up by 4.25 percentage points in 2022, the Fed is expected to ease back, with a 0.25 percentage point increase in February. That is forecast to be followed by additional quarter-point increases in March and May.

Rate cuts likely won’t come until 2024, the firm said.

—Jeff Cox

Goldman Sachs shares fall on earnings miss

Goldman Sachs shares declined 2.4% after the Wall Street investment bank shared fourth-quarter earnings results that missed analysts’ expectations on both the top and bottom lines.

The bank reported earnings of $3.32 per share on $10.59 billion in revenues. Consensus estimates called for earnings of $5.48 a share on revenues of $10.83 billion, according to analysts surveyed by Refinitiv.

Provisions for credit losses also came in slightly above expectations.

— Hugh Son, Samantha Subin

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Business

Shares rise, yen climbs as BOJ battles bond bears

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  • BOJ under intense pressure as it defends yield policy
  • Yen hits 7-mth high, yuan climbs as dollar eases
  • More earnings ahead, many central bank speakers
  • Britain’s FTSE flirts with record high

SYDNEY/LONDON, Jan 16 (Reuters) – Shares firmed on Monday as optimism over corporate earnings and China’s reopening offset concerns the Bank of Japan (BOJ) might temper its super-sized stimulus policy at a pivotal meeting this week, while a holiday in U.S. markets made for thin trading.

The yen climbed to its highest since May after rumours swirled the BOJ might hold an emergency meeting on Monday as it struggles to defend its new yield ceiling in the face of massive selling. read more

That had local markets in an anxious mood, and Japan’s Nikkei (.N225) slipped 1.3% to a two-week low.

Yet MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) added 0.27%, with hopes for a speedy Chinese reopening giving it a gain of 4.2% last week.

And European shares opened positively with the STOXX 600 (.STOXX) up 0.1% by 0850 GMT driven by healthcare stocks (.SXDP) which gained 0.6%.

Britain’s benchmark FTSE index (.FTSE) edged close to the record high of 7903.50 it hit in 2018, with banks and life insurance companies among the top gainers.

Earnings season gathers steam this week with Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Netflix (NFLX.O) among those reporting.

World leaders, policy makers and top corporate chiefs will be attending the World Economic Forum in Davos, and there are a host of central bankers speaking, including no fewer than nine members of the U.S. Federal Reserve.

The BOJ’s official two-day meeting ends on Wednesday and speculation is rife it will make changes to its yield curve control (YCC) policy given the market has pushed 10-year yields above its new ceiling of 0.5%. read more

The BOJ bought almost 5 trillion yen ($39.12 billion) of bonds on Friday in its largest daily operation on record, yet 10-year yields still ended the session up at 0.51%.

Early on Monday, the bank offered to buy another 1.3 trillion yen of JGBs, but the yield stuck at 0.51%.

“There is still some possibility that market pressure will force the BOJ to further adjust or exit the YCC,” JPMorgan analysts said in a note. “We can’t ignore this possibility, but at this stage we do not consider it a main scenario.”

“Although domestic demand has started to recover and inflation continues to rise, the economy is not heating up to the extent that a sharp rise in interest rates and potential risk of large yen appreciation can be tolerated,” they added.

THE YEN UN-ANCHORED

The BOJ’s uber-easy policy has acted as a sort of anchor for yields globally, while dragging down the yen. Were it to abandon the policy, it would put upward pressure on yields across developed markets and most likely see the yen surge.

The dollar has been undermined by falling U.S. bond yields as investors wager the Federal Reserve can be less aggressive in raising rates given inflation has clearly turned the corner.

The Japanese yen rose to a more than seven-month peak against the dollar on Monday, as market sentiment was dominated by expectations that the BOJ would make further tweaks to, or fully abandon, its yield control policy.

The yen jumped roughly 0.5% to a high of 127.215 per dollar, before easing to 128.6 by 0915 GMT.

The dollar index, which measures the U.S. unit against a basket of major currencies, recovered from a 7-month low touched earlier in the session to be at 102.6 .

Futures now imply almost no chance the Fed will raise rates by half a point in February, with a quarter-point move seen as a 94% probability.

Yields on 10-year Treasuries are down at 3.498%, having fallen 6 basis points last week, close to its December trough, and major chart target of 3.402%.

Alan Ruskin, global head of G10 FX Strategy at Deutsche Securities, said the loosening of global supply bottlenecks in recent months was proving to be a disinflationary shock, which increases the chance of a soft landing for the U.S. economy.

“The lower inflation itself encourages a soft landing through real wage gains, by allowing the Fed to more readily pause and encouraging a better behaved bond market, with favourable spillovers to financial conditions,” Ruskin said.

“A soft landing also reduces the tail risk of much higher U.S. rates, and this reduced risk premia helps global risk appetite,” Ruskin added.

Commodities prices which had rallied last week, dipped on Monday.

The drop in yields and the dollar had benefited the gold price, which jumped 2.9% last week, but the precious metal slipped 0.4% to $1,911 an ounce in early trading on Monday .

Oil prices slid as a rise in COVID cases clouded the prospects for a surge in demand as China reopens its economy.

Brent crude fell 73 cents, or 0.83%, to $84.57 a barrel by 0857 GMT, while U.S. West Texas Intermediate crude CLc1 was down 61 cents, or 0.6%, at $79.24 a barrel.

($1 = 127.8000 yen)

Reporting by Wayne Cole and Lawrence White;
Editing by Shri Navaratnam and Emelia Sithole-Matarise

Our Standards: The Thomson Reuters Trust Principles.

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Business

Bank of Japan Lets a Benchmark Rate Rise, Causing Yen to Surge

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TOKYO—The Bank of Japan made a surprise decision to let a benchmark interest rate rise to 0.5% from 0.25%, pushing the yen higher and ending a long period in which it was the only major central bank not to increase rates.

The

BOJ

said the yield on the 10-year Japanese government bond could rise as high as 0.5% from a previous cap of 0.25%. The central bank has set a target range around zero for the benchmark government bond yield since 2016 and used that as a tool to keep overall market interest rates low.

The 10-year yield, which had been stuck around 0.25% for months because of the central bank cap, quickly moved up to 0.46% in afternoon trading. 

The yen rose in tandem. In Tuesday afternoon trading in Tokyo, one dollar bought between 133 and 134 yen, compared with more than 137 yen before the BOJ’s decision.

The Nikkei Stock Average, which had been slightly higher in the morning, was down more than 2% as investors digested the possibility that companies would have to pay higher interest on their debt. Also, the weak yen has pushed up profits for many exporters, so a stronger yen could be negative for stocks. 

Gov.

Haruhiko Kuroda,

who is nearing the end of 10 years in office, is known for making moves that surprise the market, although he had made fewer of them in recent years.

Market players had anticipated that time might be running out on the Bank of Japan’s low-rate policy, but they generally didn’t expect Mr. Kuroda to move at the year’s final policy meeting.

The Bank of Japan’s statement on its decision Tuesday didn’t mention inflation as a reason to let the yield on government bonds rise as high as 0.5%. Instead, it cited the deteriorating functioning of the government bond market and discrepancies between the 10-year government bond yield and the yield on bonds with other maturities. 

The bank said Tuesday’s move would “facilitate the transmission of monetary-easing effects,” suggesting it didn’t want the decision to be interpreted as monetary tightening.

The move is “a small step toward an exit” from monetary easing, said

Mitsubishi UFJ Morgan Stanley Securities

strategist Naomi Muguruma. 

Ms. Muguruma said the BOJ needed to narrow the gap between its cap on the 10-year yield and where the yield would stand if market forces were given full rein. 

“Otherwise magma for higher yields could build up, causing the yield to rise sharply when the BOJ actually unwinds easing,” she said. 

Japan’s interest rates are still low compared with the U.S. and Europe, largely because its inflation rate hasn’t risen as fast. The Federal Reserve last week raised its benchmark federal-funds rate to a range between 4.25% and 4.5%—a 15-year high—while the European Central Bank said it would raise its key rate to 2% from 1.5%.

In the U.S., inflation has started to slow down recently but is still running above 7%. In Japan, consumer prices in October were 3.7% higher than they were a year earlier.

Japan has seen prices rise like other countries, owing to the impact of the war in Ukraine as well as the yen’s weakness. However, the pace of inflation is milder in Japan, where consumers tend to be highly price sensitive.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

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Business

Japan’s inflation hits 40-year high as BOJ sticks to easy policy

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  • Japan CPI +3.6% yr/yr vs forecast +3.5%, highest since 1982
  • Bulk of price hikes due to cost-push inflation, unsustainable
  • BOJ sees consumer inflation falling below 2% next fiscal year

TOKYO, Nov 18 (Reuters) – Japan’s core consumer inflation accelerated to a 40-year high in October, driven by currency weakness and imported cost pressures that the central bank shrugs off as it sticks to a policy of ultra-low interest rates.

The nationwide core consumer price index (CPI) was up 3.6% on a year earlier, exceeding the 3.5% rise expected by economists and the 3.0% gain seen in September.

Reuters Graphics

It was the largest jump since February 1982, when a Middle East crisis stemming from the Iran-Iraq war disrupted crude oil supply and triggered a spike in energy prices.

The rise in the index, which excludes volatile fresh food prices but includes oil products, confirmed that inflation remained above the 2% goal of the Bank of Japan (BOJ) for a seventh consecutive month.

But economists do not expect the BOJ to join a global trend of raising interest rates, because it sees this year’s acceleration in inflation as a cost-push episode that will fade as import costs stop pushing.

Foreign supply constraints have driven up prices of imported food, industrial commodities and manufacturing parts, and so has a fall in the yen, which in dollar terms is down more than 20% this year.

“I haven’t changed my view that the rise will start to slow down soon,” said Takeshi Minami, chief economist at Norinchukin Research Institute, noting declines in global grain prices. “I expect inflation to peak by year-end and the rise in prices to start diminishing in the new year.”

BOJ Governor Haruhiko Kuroda reiterated on Thursday a pledge to maintain monetary stimulus to achieve wage growth and sustainable and stable inflation. The central bank is keeping long-term interest rates around zero and short-term rates at minus 0.1%.

[1/3] A woman chooses products at a drug store in Tokyo, Japan October 21, 2022. REUTERS/Kim Kyung-Hoon/File Photo

The economy remains fragile as it recovers from the COVID-19 downturn. Also, Japan’s inflation rate remains moderate by the standards of other developed countries.

BEER, SAKE UP

Kuroda has argued that global commodity costs account for half of the magnitude of Japan’s price rises.

The October data showed raw-material price rises and the yen’s weakness had driven a 15.2% increase in energy costs, while food excluding perishables was up by 5.9%, the fastest rise since March 1981.

Among food items, 88% were more costly than a year before, led by alcoholic drinks, such as beer and sake.

Prices of household durable goods were up 11.8%, their biggest rise since March 1975, driven by costs of transportation, raw materials and energy and by the weak currency.

The data suggests Japanese firms may be shaking off their deflationary mindset as they apply price rises to a broadening range of products. Of the 522 items composing the core consumer price index, 406 were more expensive in October than a year earlier. In September, 385 were.

The BOJ has forecast average prices for the fiscal year to March 2023 will be 3% higher than in 2021-22 but that the rise for 2023-24 will be only half as great, because commodity and other cost-push factors will have subsided.

In a sign subcontractors are struggling with wholesale price pressures, the corporate goods price index jumped 9.1% in the year to October.

Reporting by Tetsushi Kajimoto; Additional reporting by Chang-Ran Kim; Editing by Sam Holmes and Bradley Perrett

Our Standards: The Thomson Reuters Trust Principles.

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Business

Japanese yen jumps as traders suspect intervention

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TOKYO/LONDON/NEW YORK, Oct 21 (Reuters) – Japanese authorities likely intervened in markets to stem the slide of the country’s battered currency on Friday, market participants said, following an unexpected jump in the yen against the dollar.

The yen rose as high as 144.50 per dollar on Friday, up more than 7 yen from a 32-year low of 151.94 yen per dollar, touched earlier in the session. The dollar was last down 1.8% at 147.34 yen.

“It’s very clearly the Ministry of Finance stepping in to sell dollar-yen,” said Mazen Issa, senior FX strategist at TD Securities in New York.

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Karl Schamotta, chief market strategist, at Corpay in Toronto concurred. “We are hearing large blocks are being traded,” he said. “That typically means either larger institutions are moving money or that a central bank is intervening in size. The clearest evidence is just the scale of dollar selling that is happening.”

The Nikkei, citing a source, also said Japan had intervened to buy yen and sell dollars.

Japan’s Ministry of Finance declined to comment.

If confirmed, this would be the second time since September that Japan has intervened in the currency market to shore up the yen.

The currency, down about 22% against the dollar this year, has been battered as the Bank of Japan sticks to an ultra-loose monetary policy, while the U.S. Federal Reserve and other major central banks aggressively raise interest rates.

The falling yen is pushing up import costs and households’ living expenses, piling pressure on Prime Minister Fumio Kishida to stop the relentless fall.

Reuters Graphics

WARNING SPECULATORS

While Bank of Japan Governor Haruhiko Kuroda has repeatedly ruled out changing the policy stance, policymakers have been vocal with their concerns.

In a speech on Friday, Kuroda stressed the central bank’s resolve to keep rates low. “Uncertainty over Japan’s economic outlook is extremely high,” Kuroda said. “We must closely watch the impact financial and currency market moves could have on Japan’s economy and price.

Japanese Finance Minister Shunichi Suzuki said earlier on Friday that the authorities were dealing with currency speculators “strictly”.

“We cannot tolerate excessive moves by speculators. We will respond appropriately while watching currency market movements with a high sense of urgency,” Suzuki said.

TD’s Issa said the market intervention happened at “a very illiquid time”, when traders in London were headed home for the weekend.

“It seems like it is designed to inflict as much pain as possible on, they like to use the term, speculators,” Issa said.

RARE MOVES

Japan has rarely intervened in currency markets. Before the September intervention, the last time it stepped in to support the currency was during the Asian financial crisis of 1997 to 1998.

It spent up to a record 2.8 trillion yen ($19.7 billion) – equivalent to half its annual defence spending – in the intervention last month. read more

Speculation that Japan would step into the market again had grown over the past week as yen weakened beyond a key psychological level of 150 per dollar on Thursday for the first time since August 1990.

While authorities have denied having a line-in-the-sand in mind, political factors mean they do need to be mindful of defending psychologically important thresholds.

They also look at technical charts for key support levels for the Japanese currency which, if broken, could accelerate its decline.

Some market participants have pointed to the dollar/yen’s July 1990 high above 152 as the next threshold, then 155.

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Reporting by Tetsushi Kajimoto and Leika Kihara in TOKYO, John McCrank, Saqib Iqbal Ahmed and Gertrude Chavez in NEW YORK and Dhara Ranasinghe in LONDON; Additional reporting by Kantaro Komiya and Sakura Murakami
Editing by Chang-Ran Kim, Shri Navaratnam, Kirsten Donovan and Diane Craft

Our Standards: The Thomson Reuters Trust Principles.

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Business

Japan’s inflation hits 8-year high in test of BOJ’s dovish policy

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  • Sept core CPI rises 3.0% yr/yr, matches forecast
  • Core consumer inflation stays above BOJ goal for 6th month
  • Data underscores broadening inflationary pressure
  • BOJ seen keeping ultra-low interest rates on fragile economy

TOKYO, Oct 21 (Reuters) – Japan’s core consumer inflation rate accelerated to a fresh eight-year high of 3.0% in September, challenging the central bank’s resolve to retain its ultra-easy policy stance as the yen’s slump to 32-year lows continue to push up import costs.

The inflation data highlights the dilemma the Bank of Japan faces as it tries to underpin a weak economy by maintaining ultra-low interest rates, which in turn are fuelling an unwelcome slide in the yen.

Reuters Graphics

The increase in the nationwide core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, matched a median market forecast and followed a 2.8% rise in August. It stayed above the BOJ’s 2.0% target for the sixth month, and was the fastest pace of gain since September 2014, data showed on Friday.

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The broadening price pressures in Japan and the yen’s tumble below the key psychological barrier of 150 to the dollar will likely keep alive market speculation of a tweak to the Bank of Japan’s dovish stance over coming months.

“The current price rises are driven mostly by rising import costs rather than strong demand. Governor Kuroda may maintain policy for the rest of his term until April, though the key is whether the government will tolerate that,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The data heightens the chance the BOJ will revise up its consumer inflation forecasts in new quarterly forecasts due at next week’s policy meeting, analysts say.

The yen’s decline has been particularly painful for Japan due to its heavy reliance on imports for fuel and most raw material, forcing companies to hike prices for a wide range of goods including fried chicken, chocolates to bread.

The so-called ‘core-core’ index, which strips away both fresh food and energy costs, rose 1.8% in September from a year earlier, accelerating from a 1.6% gain in August and marking the fastest annual pace since March 2015.

The rise in the core-core index, which the BOJ closely watches as a key gauge of the underlying strength of inflation, toward its 2% target casts doubt on the central bank’s view that recent price rises will prove temporary.

With Japan’s inflation still modest compared with price rises seen in other major economies, the BOJ has pledged to keep interest rates super-low, remaining an outlier in a global wave of monetary policy tightening.

BOJ Governor Haruhiko Kuroda has stressed the need to focus on supporting the economy until wage growth picks up enough to compensate for the rising cost of living.

While Japan’s labour union lobby has pledged to demand wage hikes of around 5% in next year’s wage negotiations, analysts doubt pay will rise so much with fears of global recession and soft domestic demand clouding the outlook for many companies.

The September CPI data showed that while goods prices rose 5.6% year-on-year, services prices were just up 0.2% in a sign of how Japan’s inflation is still driven mostly by cost-push factors.

“Consumer inflation is likely to slow in 2023. If so, any tweak to the BOJ’s easy monetary policy will be minor even under the change to the bank’s leadership next year,” said Yasunari Ueno, chief market economist at Mizuho Securities.

Governor Kuroda will see his second, five-year term expire in April next year. The term of his two deputy governors will also end in March.

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Reporting by Leika Kihara and Takahiko Wada; Additional reporting by Yoshifumi Takemoto; Editing by Sam Holmes and Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.

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Business

Hong Kong stocks lead losses; Fed, BOJ meeting this week

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Chinese yuan has room to weaken further in the near-term, Goldman Sachs says

There’s still room for the Chinese yuan to weaken further, economists at Goldman Sachs said after both the onshore and offshore yuan fell to their lowest levels since July 2020 last week.

“We expect CNY weakness to persist in the near-term, underpinned partly by broad USD strength,” strategists said in a note, adding the next key level to watch is 7.20, which was last tested in May 2020.

Such a move, however, will come in tandem with a “sizable” strengthening the U.S. dollar, they said in the note, adding “CNY is unlikely to weaken by 3% in isolation.”

—Jihye Lee

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Business

BOJ maintains ultra-low rates, warns against sharp yen falls

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  • BOJ keeps interest rate targets unchanged
  • Gov Kuroda rules out near-term rate hike
  • Kuroda says yen’s sharp fall undesirable, bad for economy
  • BOJ ramps up efforts to defend 0.25% yield cap

TOKYO, June 17 (Reuters) – The Bank of Japan maintained ultra-low interest rates on Friday and vowed to defend its cap on bond yields with unlimited buying, bucking a global wave of monetary tightening in a show of resolve to focus on supporting a tepid economic recovery.

The yen fell as much as 1.9% and bond yields fell after the decision, which was widely expected but disappointed some market players who speculated the BOJ could give into market forces and tweak its yield cap policy.

However, in a nod to the hit that the yen’s recent sharp declines may have on the economy, the BOJ said it must “closely watch” the impact exchange-rate moves could have on the economy.

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“Recent rapid falls in the yen heighten uncertainty on the outlook and make it difficult for companies to set business plans. It’s therefore negative for the economy and undesirable,” BOJ Governor Haruhiko Kuroda told a news conference.

At the two-day policy meeting that ended on Friday, the BOJ maintained its -0.1% target for short-term rates and its pledge to guide the 10-year yield around 0% by an 8-1 vote.

The central bank also stuck to its guidance to keep rates at “present or low” levels, and ramped up a programme to buy an unlimited sum of 10-year government bonds at 0.25%.

“Raising interest rates or tightening monetary policy now would add further downward pressure on an economy that is in the midst of recovering from the COVID-19 pandemic’s pain,” Kuroda said, brushing aside the chance of a near-term rate hike.

He also said the BOJ won’t tolerate a rise in the 10-year yield above its implicit 0.25% cap, and had no plan to increase the upper limit despite pressure from rising global yields.

“There was speculation the BOJ could tweak policy to address currency moves, but the answer from the central bank was no,” said Shotaro Kugo, an economist at Daiwa Institute of Research.

Kuroda’s remarks highlight the BOJ’s position as the world’s last major dovish central bank, as its peers aggressively tighten monetary policy to curb surging inflation. read more

CAUGHT IN A DILEMMA

Central banks across Europe raised interest rates on Thursday, some by amounts that shocked markets, in the wake of the U.S. Federal Reserve’s 75-basis-point hike. read more

The growing policy divergence between Japan and the rest of the world has pushed the yen to 24-year lows against the U.S. dollar, threatening to cool consumption by boosting already rising import costs.

The government and the BOJ have escalated their warnings against sharp yen falls, including by issuing a joint statement last week signalling readiness to step into the currency market if necessary. read more

“We must carefully watch the impact financial and currency market moves could have on Japan’s economy and prices,” the BOJ said on Friday, including a reference to exchange rates in its policy statement for the first time in a decade.

Such concerns over the weak yen, however, have not deterred the BOJ from defending its cap for its 10-year yield target by ramping up bond purchases.

The yield cap has faced attack by investors betting the central bank could adjust its policy as rising U.S. yields push up long-term rates across the globe.

The 10-year Japanese government bond (JGB) yield hit a six-year high of 0.268% in early trade on Friday, before retreating to 0.22% after the central bank’s policy decision.

Shortly after the announcement, the BOJ made an additional offer to buy unlimited amounts of 10-year JGBs, including those with seven years left until maturity.

The BOJ is caught in a dilemma. With Japan’s inflation well below that of Western economies, its focus is to support the stil-weak economy with low rates. But the dovish policy has triggered a slump in the yen, hurting an economy heavily reliant on fuel and raw material imports.

With Kuroda having ruled out rate hikes, the onus may be on the government to fend off any further yen plunge, including by intervening in the market to prop up the currency.

Analysts, however, doubt Tokyo can get consent from Washington and other G7 members for a joint intervention, or that stepping in solo would work. read more

“There’s a myth in the market and public that currency intervention works. But the reality is there’s not much the government or the BOJ can do to stem yen falls,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“I think the BOJ will just sit tight and weather the storm.”

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Reporting by Leika Kihara; Additional reporting by Tetsushi Kajimoto, Kantaro Komiya and Daniel Leussink; Editing by Jacqueline Wong, Richard Pullin and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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BOJ will be ‘alarmed’ if yen crosses 130 per dollar, says ex-vice minister

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The Bank of Japan will be “alarmed” if the yen weakens beyond 130 per dollar, according to Japan’s former vice minister of finance for international affairs, Eisuke Sakakibara.

The yen was trading at 123.77 per U.S. dollar on Wednesday morning Asia.

The Japanese currency fell more than 5% against the greenback in March, despite the yen being seen traditionally as a safe-haven currency. Still, the yen took a hard hit as geopolitical turmoil, such as the Russia-Ukraine war, roiled global markets.

The yen’s weakening comes amid expectations the Bank of Japan would be slower than other central banks in tightening monetary policy.

While its global peers such as the U.S. Federal Reserve have started raising interest rates and are expected to make more aggressive moves to tame inflation, the Japanese central bank has continued its massive stimulus.

The yen’s current levels against the greenback won’t be a problem, said Sakakibara, previously referred to as “Mr. Yen” when he led multiple currency interventions during the 1990s. He pointed out that the dollar-yen traded between 120 and 125 about four or five years ago.

A Japanese national flag flies outside the Bank of Japan headquarters in Tokyo, Japan, on Sept. 27, 2021. The Japanese central bank has for years adopted ultra-easy monetary policy in a bid to achieve its ever elusive inflation target.

Toru Hanai | Bloomberg | Getty Images

“This yen depreciation is a reflection of the dollar appreciation vis-à-vis yen and market expect that depreciation of the yen would probably continue and some people expect that dollar-yen rate toward 130,” said Sakakibara, currently president at Institute for Indian Economic Studies.

“If it goes to 130 — and beyond 130 — that may create some problems,” he told CNBC’s “Asia Squawk Box” on Tuesday. The Bank of Japan “will be alarmed” if the dollar-yen rate goes beyond 130, he added.

Japan’s inflation target

Bank of Japan Governor Haruhiko Kuroda said Tuesday the Japanese currency’s recent moves were “somewhat rapid” but reiterated that a weak yen helps Japan’s economy as a whole, Reuters reported.

Under Kuroda’s leadership, the Japanese central bank has for years adopted an ultra-easy monetary policy in an attempt to achieve its ever elusive inflation target.

“I don’t see the Bank of Japan being particularly upset about it if you keep the inflation goal front and center,” said Manpreet Gill, head of fixed income, currencies and commodities strategy at Standard Chartered Private Bank.

The current situation actually helps the Japanese central bank in achieving inflation, he said, though that may not last as the recent weakness in the yen was driven by dollar strength, and several rate hikes by the Fed have already been factored into the price.

Meanwhile, NatWest Markets’ Galvin Chia said the Bank of Japan is currently in a “difficult situation.”

“The markets have really hopped onto this idea, you know, like we saw over the last two weeks, that the yen should be depreciating,” said Chia, an emerging markets strategist.

“My own personal view is that the BOJ is rightly more concerned about the pace of [the yen’s] depreciation … and sort of the volatility that may create around financial markets as opposed to the level,” he said.

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