The value of the yen continues in free fall. The Japanese currency plummeted this Thursday to reach a new record low in its price against the dollar, after the Bank of Japan reaffirmed that it would keep its ultra-easy monetary policies unchanged and underlined its determination to keep interest rates at minimum levels. After finishing its regular meeting on monetary policy, the bank has made it clear that it is not in a hurry to start a transition towards stricter policies such as those applied by the US Federal Reserve and the European Central Bank, reiterating that the approach adopted by Tokyo is not governed by that of Washington.
A dollar came to be bought at 130 yen this Thursday, its most expensive price against the Japanese currency since April 2002. The depreciation of the yen – which had already reached its lowest level in two decades on the 13th – accelerated after knowing that Japan’s central bank will make unlimited purchases of fixed-rate government bonds “every business day.” This measure seeks to curb the increase in the yield of the 10-year Japanese bond, which had reached profits of 0.25%, the limit allowed by the Japanese monetary authority. To that end, the Bank of Japan will continue to set short-term interest rates at -0.1% and keep 10-year bond yields around 0%.
The governor of the Bank of Japan, Haruhiko Kuroda, said that, although operations abroad are increasing their profits, such a situation cannot serve as a justification for increasing interest rates on loans on Japanese soil. “We want to prevent long-term interest rates from trading above 0.25%, because it is inappropriate,” he said, adding that he has not changed his view that a weak yen benefits the world economy. country.
The devaluation of the Japanese currency against the US favors companies with an international projection, since they can increase their purchasing power in Japan by changing the foreign currency to yen. However, for a nation so highly dependent on imports of raw materials and energy, the collapse of the yen may have a negative impact on the purchasing power of citizens and affect those companies oriented to the local market, which will be forced to pay higher import costs.
Tokyo’s plan contrasts sharply with Washington’s. At the end of March, the United States Federal Reserve, a world reference for the debt market, announced the first increase in interest rates since 2018 to try to contain the inflationary earthquake caused by the war in Ukraine, and a week ago it advanced that at the May meeting it will be on the table to raise interest rates even more. This divergence in policies between the world’s first and third largest economies widens the gap between the yield of Japanese and US government bonds, which decreases the demand for the yen and causes international investors to choose to sell their titles in the stock market. nippon.
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The Japanese central bank also announced that it will continue with its quantitative easing program and with the interest rate curve control policy to reach the 2% inflation target that Kuroda set as a goal for price stability in 2013. Although the increase in the prices of energy and raw materials, as well as the weakening of the yen, is causing an upturn in inflation, experts believe that it will be transitory and that the governor will not achieve this goal before leaving office in April next calendar. According to the forecasts published this Thursday, in 2022 core inflation (reflected by the consumer price index when neither energy products nor fresh food are taken into account) is expected to increase by 1.9% year-on-year, to then moderate around 1.1% in 2023 and 2024.
The expansionary policies of the Japanese central bank have received the backing of Prime Minister Fumio Kishida, who on Tuesday said he expected continued progress towards 2% inflation. However, he expressed his concern about the rapid fluctuations of the currency, which, in his opinion, are “unfavourable”. The devaluation of the yen, however, has encouraged Japanese investors on Thursday, recently wary of doubts about whether the resurgence of covid-19 in China will cause interruptions in the global supply chain. The Tokyo Stock Exchange closed with an advance of 1.75% in its main indicator, the Nikkei, after experiencing losses the day before.
