CEO Morning Brief

Yen Sinks to 10-month-low After BOJ Stresses Need to Keep Easy Policy

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Publish date: Tue, 26 Sep 2023, 09:11 AM
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TheEdge CEO Morning Brief

(Sept 25): Bank of Japan (BOJ) governor Kazuo Ueda and his deputy doubled down on the central bank’s message that stimulus is still needed, in comments that helped nudge the yen to a fresh year-to-date low and spark a warning on currency movements from Prime Minister Fumio Kishida.

Following on from the BOJ’s decision on Friday (Sept 22) to leave all its ultra-easy policy settings untouched, Ueda and deputy governor Shinichi Uchida used separate appearances on Monday to drive home the message that the economic recovery and price trends are too precarious to mull an imminent pivot.

Uncertainties around pay and inflation are high, and therefore the goal of achieving 2% inflation accompanied by wages gains hasn’t yet “come in sight,” Ueda told business leaders in Osaka. Uchida also cited “extremely high” uncertainties in making the case to stay patient at an event in Tokyo.

The yen drifted lower against the dollar, later reaching 148.66 (RM4.71), the weakest since November. Kishida, who usually stays above the fray on currency warnings, reiterated the government’s stance that excessive moves in the foreign exchange market are not desirable.

Wrapped stacks of Japanese ¥10,000 banknotes at the National Printing Bureau Tokyo.

The remarks from the BOJ leadership appeared to be an extension of efforts to walk back policy change expectations after Ueda’s comments in an interview with the local press prompted economists to move forward their predictions for a rate hike.

But pushing back against those expectations also weighs on the yen, complicating the situation for Kishida as he gets ready to provide another round of support for voters frustrated with soaring prices.

The governor refrained from commenting on currency levels while pledging to coordinate with the government on currencies.

“The BOJ won’t conduct policy to directly influence foreign exchange rates,” Ueda told reporters. “It’s desirable it moves in a stable manner and reflects economic fundamentals.”

Ueda stressed that the economic recovery remains too fragile for a change of direction. Policymakers have reached an important juncture for nurturing “the buds of change in the economy, he said. Authorities “will pay close attention to whether moves to increase wages will continue, and whether the underpinning of private consumption from the income side will strengthen.”

The weak yen has helped spur inflation, drawing concern from the government. Kishida’s comments follow a string of warnings from government top brass. Masato Kanda, the top currency official at the Ministry of Finance, has said he’s keeping in close contact with his counterparts in the US, and both sides agree excessive moves are unwelcome.

Ueda indicated that US Federal Reserve policy is a key factor in determining global asset price movements. It’s important to watch the impact of financial conditions in the US on “global financial and foreign exchange markets,” he said.

The widening interest gap between the US and Japan has dragged the yen lower since the Fed began its monetary tightening campaign. Regarding global inflation trends, price increases “are still somewhat high relative to the central bank targets,” Ueda said.

Japan’s nationwide inflation hovered above the BOJ target for a 17th month in August, with prices excluding fresh food rising 3.1% from a year ago. October data for Tokyo — a leading indicator for the nation - are expected to show the trend of high inflation continuing, albeit with an incremental degree of moderation.

The governor noted that inflation is weighing on discretionary spending, a concern for Kishida’s government.

“At the moment, with price rises weighing on consumption, households’ defensive attitudes towards spending — such as shifting demand towards inexpensive products — are being observed with regard to food and other items that have seen large price increases,” Ueda said.

Kishida offered a very brief outline of his latest economic measures that are expected to help businesses and households while also providing support for chipmakers and companies that boost pay.

Source: TheEdge - 26 Sep 2023

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