The Bank of Japan (BoJ) stuck to its monetary easing policy on Friday even as other central banks raised interest rates to tame inflation, but said it would “pay due attention wanted” to the currency markets after the yen hit a 24-year low.
The bank will keep rates under 0.1% and continue to buy unlimited government bonds to maintain a low cap on long-term yields as part of a decade-old plan to boost the third economy. world.
The decision, announced after a two-day policy meeting, bucks a global trend of monetary tightening aimed at tackling sky-high fuel and food prices caused by the war in Ukraine and chain problems. supply.
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The rate hikes were led by the US Federal Reserve, which this week announced its most aggressive hike in nearly 30 years and signaled that more were in the works.
The European Central Bank announced its intention to begin a series of hikes next month, while the Bank of England announced a fifth consecutive increase on Thursday and Switzerland surprised the markets with its own rate hike, the first since 2007.
The widening gap between Japanese and US monetary policy this week pushed the yen to its lowest level against the dollar since 1998, a growing source of concern that even the central bank referenced in its policy statement.
“It is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on economic activity and prices in Japan,” the BoJ said, in an unusual reference to forex movements.
After the announcement, one dollar bought 134.63 yen, from 133.41 yen earlier in the day.
“Aiming for price stability”
Bank governor Haruhiko Kuroda told reporters that the yen’s rapid depreciation is “undesirable for the economy, as it has increased uncertainty about the future and made it difficult for businesses to make plans.” business”.
However, he added that “Central banks do not target exchange rates. We conduct monetary policy aimed at price stability.”
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Kuroda said the BoJ was not considering widening the trading range for 10-year bonds, a move analysts said could help support the yen.
A weaker currency helps Japanese exporters because it inflates repatriated profits, noted Yoshikiyo Shimamine, executive chief economist at the Dai-ichi Life Research Institute.
For the BoJ, “these benefits may outweigh the negative aspects of a cheaper high yen price for imported goods, which hurts people without sufficient wage increases,” he said. at AFP.
The bank’s ultra-loose monetary policy aims to achieve 2% inflation, a target stubbornly out of reach during years of stagnant prices.
In April, core consumer prices hit the target for the first time since 2015, but the BoJ warned it viewed the recent price rise as a temporary and volatile trend.
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Inflation has been rising for months in the United States and elsewhere, as sustained demand for cars and other goods comes up against supply issues caused by COVID-19 shutdowns.
The problem worsened considerably after Russia invaded Ukraine in February and Western countries imposed harsh sanctions on Moscow, sending food and fuel prices skyrocketing, a particular problem in Japan. poor in resources.
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Post expires at 3:08pm on Monday June 27th, 2022