TOKYO (Archyde.com) – The yen-buying intervention on Friday has sparked speculation among market players that there may be a policy mismatch between the government and the Bank of Japan. Both sides deny that there is a contradiction, but there is a persistent view that the BOJ will eventually be forced to revise its monetary easing policy as the government is overwhelmed by concerns over the negative impact of the weaker yen.
On the afternoon of the 22nd, after the monetary policy meeting, Governor Haruhiko Kuroda said that there was no need to raise the policy interest rate for the time being, and the yen exchange rate plummeted to the upper half of 145 yen to the dollar. The forward guidance for monetary policy also announced that there would be no (change) for two or three years, which also invited yen selling.
Although the government has not announced the timing of the yen-buying intervention, it is believed to have been around 5:00 p.m., after Governor Kuroda’s press conference ended. Yen-buying intervention, which absorbs yen funds from the market in the short term, and monetary easing, which increases the supply of yen, seem to be the opposite of each other.
“It seems that the policies of the Japanese government and the Bank of Japan are inconsistent.” A foreign-affiliated securities firm in Tokyo says that such inquiries are endless.
Both the BOJ and the government emphasize that the policy is consistent. At a press conference in Osaka on the 26th, Governor Kuroda was asked by a reporter if there was a contradiction, and denied, “I don’t think so at all.” He said fiscal policy and monetary policy “have different objectives and effects, which makes policy mix possible.” Finance Minister Shunichi Suzuki also said at a post-cabinet press conference on the 26th, “(Governor Kuroda’s) remarks included strong concerns about the sudden depreciation of the yen. I have,” he said.
A government official said, “The BOJ will take responsibility for operating monetary policy by targeting prices, and if the accompanying interest rate differentials affect the exchange rate, the Ministry of Finance will respond as necessary. There is,” he explains.
While the consumer price index is approaching 3% due to soaring global commodity prices and the weak yen, there is strong skepticism within the government and the Bank of Japan that prices will continue to rise. Some within the government say that it is natural for the BOJ to continue monetary easing in response to rising prices when wages have not risen.
Still, the smoke is smoldering as the exchange rate swings to the yen’s depreciation again. McDonald’s Japan and Mister Donut, which raised prices in March due to high raw material prices, announced on the 26th that they will raise prices again. This time, he cited the depreciation of the yen as one of the reasons.
“Considering that the government recognizes that the depreciation of the yen is negative for the economy, it is likely that they really want to stop the depreciation of the yen. It’s easy for the yen to depreciate,” said Takahide Kiuchi, an executive economist at Nomura Research Institute and a former deputy councilor at the Bank of Japan. “The reality is that the two positions are contradictory,” she says.
At a press conference in Osaka City on the 26th, Governor Kuroda partially revised his remarks on maintaining forward guidance on the 22nd, which was one of the reasons for the plunge of the yen. He said that the forward guidance for policy interest rates, which “is expected to remain at or below the current levels of long- and short-term interest rates,” is “related to the coronavirus pandemic,” and that “it will not necessarily be two to three years.” It’s not long term,” he said. This was after he was criticized by private sector economists for his mention of the interest rate policy after his retirement.
“As inflation becomes a global problem, the BOJ is approaching the time to replace its governor,” said a person familiar with the BOJ’s way of thinking. “The timing of a change in leadership could present an opportunity to modify policy.”
(Reika Kihara, Takaya Yamaguchi Interview cooperation: Tetsushi Kajimoto, Yoshifumi Takemoto Editing: Nobuhiro Kubo)