Japanese Finance Minister Shunichi Suzuki said on Friday that he will conduct interventions in response to sudden currency movements.
Key quotes
Sees lingering deflationary pressures.
Warns of risk of deflation returning.
Warns against sudden movements in the foreign exchange market.
Weak Yen has pros and cons.
Japan has taken action, including FX intervention, as excessive volatility in forex is not desirable.Japan hasn't fully overcome deflation yet.
There's a potential risk of Japan's financial health deterioration from rate hike as government debt is large.
Questionable whether sale of BoJ-owned ETF to govt at book value is acceptable in light of BoJ policy.
Important for government to worl closely with the BoJ on economic, financial situations.
Rapid FX moves are undesirable.
Important for currencies to move in stable manner, reflecting fundamentals.
FX intervention in July was effective.
Market reaction
At the time of writing, USD/JPY is trading 0.27% lower on the day at 145.88.
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. With wage inflation becoming a cause of concern, the BoJ looks to move away from ultra loose policy, while trying to avoid slowing the activity too much.
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