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HomeCurrenciesBOJ Governor Asserts No Immediate Response to Weakening Yen Through Rate Hike
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BOJ Governor Asserts No Immediate Response to Weakening Yen Through Rate Hike

Bank of Japan Governor Kazuo Ueda dismissed market speculation suggesting that the recent decline in the yen might prompt the central bank to implement interest rate hikes. Ueda emphasized that the Bank of Japan (BOJ) would not directly adjust monetary policy in reaction to currency fluctuations.

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Despite the yen’s significant depreciation, Ueda expressed confidence in the wage outlook and hinted at the possibility of a rate hike if trend inflation, which remains below 2%, moves towards the targeted level.

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During a parliamentary session, Ueda reiterated the BOJ’s stance, affirming that currency movements would not directly influence the timing of the next rate hike. He emphasized that while a weakening yen could elevate import prices, such a scenario alone would not prompt a rate hike. Ueda highlighted the crucial factor as whether these price dynamics would translate into broader inflation and wage growth.

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“If there’s a risk of inflation and wages rising beyond expectations, leading to trend inflation surpassing 2%, we may need to reconsider our monetary policy,” stated Ueda on Wednesday.

Following the BOJ’s recent policy adjustment, which marked the end of eight years of negative interest rates, the yen has been on a downward trajectory. Market interpretations of the BOJ’s dovish guidance suggested that further rate hikes might be postponed.

On Wednesday, the yen traded at 151.80 against the dollar, nearing a 34-year low reached last month. Concerns over potential currency intervention were raised by Tokyo authorities.

Ueda defended the BOJ’s decision to exit ultra-loose policies in March, citing the perceived proximity to achieving the 2% inflation target sustainably. Delaying this exit, according to Ueda, would heighten the risk of an inflationary overshoot, necessitating aggressive interest rate hikes.

Ueda noted an observable shift in corporate behavior, with more companies considering price and wage increases.

The BOJ’s forthcoming quarterly growth and inflation forecasts, scheduled for release during its policy meeting on April 25-26, are anticipated to provide insights into the timing of potential rate hikes, analysts predict. A projection by the Japan Center for Economic Research indicated that a majority of economists foresee at least one more rate hike this year.

While a weaker yen can bolster exports, it poses challenges for households and retailers by inflating the costs of imported raw materials. Ueda clarified that trend inflation excludes one-off factors such as fuel costs and is evaluated based on various indicators reflecting the economy’s strength and domestic demand’s impact on prices.

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