The Bank of Japan is seen as likely to take monetary policy action if the weakening yen has a significant impact on prices, governor Kazuo Ueda said on Wednesday. This indirectly provides the strongest indication yet that the continued depreciation of the currency could trigger another interest rate hike.
Ueda also said the BOJ could raise interest rates earlier than expected if inflation exceeds its forecast, or risks to the price outlook increase.
Finance Minister Shunichi Suzuki voiced "concern" on Wednesday about the negative impact of a weak yen, such as rising import costs, and reiterated the government's willingness to intervene in the market to support the depreciating currency.
The statement was the result of a meeting between Ueda and Prime Minister Fumio Kishida on Tuesday, underscoring the determination of the government and central bank to work together in curbing the yen's worrisome decline.
Ueda's post-meeting comments were indicated by some traders as a factor that accelerated the yen's decline by raising market expectations that the BOJ would refrain from raising interest rates from current levels near zero for a while.
After the yen hit a 34-year low of 160.245 per US dollar on April 29, Japanese authorities are suspected of spending more than 9 trillion yen ($58.4 billion) to intervene in the market last week to support the currency.
Speaking at a seminar on Wednesday, Ueda said that a sharp decline was undesirable because it would have a negative impact on the economy. He also said trend inflation is moving towards the BOJ's 2% target as the good wage inflation cycle becomes more robust, highlighting the central bank's confidence that the conditions for additional interest rate hikes are forming.
The BOJ will "make adjustments to the degree of monetary easing" by raising interest rates, according to analysts if trend inflation moves quickly toward its 2% target as forecast, Ueda said, pointing to the possibility of raising rates in the short term and in several phases over the years. upcoming
The BOJ ended its negative interest rates and radical stimulus program in March. Most market players expect the BOJ to raise rates from current levels near zero this year.
Regarding the BOJ's bond purchases, Ueda said the central bank will maintain the size of the purchases for a while to study how the market absorbs the BOJ's policy changes in March. However, he said, it would be appropriate to reduce the size of bond purchases in the future.
