Bank of Japan members say yen rates not target of monetary policy: minutes

23-Jun-2022 Intellasia | Mainichi | 5:02 AM Print This Post

Bank of Japan board members underscored the central bank’s commitment to monetary easing, while clearly stating that its policy is not aimed at controlling foreign exchange rates amid the weakness of the yen, minutes of their April meeting showed Wednesday.

Several members said currency moves should be stable reflecting economic and financial fundamentals and that recent rapid fluctuations in the yen make it hard for companies to draw up business plans, as financial markets factored in the prospect of a widening interest rate gap between Japan and the United States and Europe.

At the April 27-28 policy meeting, the BOJ maintained its monetary policy by setting its short-term interest rates at minus 0.1 percent and guiding 10-year Japanese government bond yields to around zero percent to support the economy.

It also announced plans to carry out unlimited fixed-rate purchases of 10-year bonds every business day to defend its 0.25 percent upper limit on the benchmark yield. The yen plunged against the US dollar after the decision.

“Some members pointed out that it was necessary for the bank to clearly communicate to the public that the aim of monetary policy conduct was to fulfill its mandate of achieving price stability, rather than to control foreign exchange rates,” the minutes said.

One member said the impact on the economy of fluctuations in foreign exchange rates and commodity prices, rather than the movements themselves, needs to be considered in guiding monetary policy.

Another noted that a weak yen was positive when underlying inflation in Japan was “extremely low”, the minutes showed.

The BOJ has taken the view that prices are rising in Japan, mainly due to higher commodity and raw material prices amid Russia’s war on Ukraine.

It has cast doubt over the sustainability of such cost-push inflation and maintained its ultralow rate to achieve its 2 percent inflation target in a stable and sustainable manner and buttress an economy on its way out of COVID-19 fallout.

That comes in stark contrast with its peers like the US Federal Reserve, which has already entered a rate hike cycle to tame surging inflation.

In the economic and price outlook report released after the April meeting, the BOJ forecast the core consumer price index excluding volatile fresh food items to rise 1.9 percent in the current fiscal year to next March.

The BOJ has been facing pressure to justify its decision to stay the course as a weak yen cuts both ways by boosting exporters’ overseas profits when repatriated and inflating import costs. Resource-poor Japan relies heavily on energy imports.

Still, prime minister Fumio Kishida has thrown his support behind the BOJ, saying that he hopes the central bank will continue to guide policy toward the inflation target.


Category: Japan

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