Tokyo (awp/afp) – The Bank of Japan (BoJ) maintained its ultra-accommodative monetary policy on Thursday, unlike the other major global central banks, which briefly propelled the dollar beyond the symbolic threshold of 145 yen, a new record for 24 years.
The dollar rose to over 145.3 yen just before 03:00 GMT, a new high since 1998. However, it quickly fell to a level close to but below 145 yen.
Unsurprisingly, the BoJ’s monetary policy committee announced the maintenance of its policy of massive support for the economy characterized by its negative rate of 0.1% on banks’ deposits with it (to encourage them to lend more) and its unlimited purchases of Japanese government bonds to cap their ten-year yields at 0.25%.
“There is a need to be alert to developments in financial and foreign exchange markets and their impact on economic activity and prices in Japan,” the BoJ said.
She also recalled the “extremely high uncertainties” surrounding the country’s economy, including the evolution of the Covid-19 pandemic, the war in Ukraine, the surge in energy prices and the levels of inflation observed in India. abroad, often much higher than in the archipelago.
The institution continues to expect consumer price inflation in Japan to slow from next year, while noting that “underlying inflationary pressure” is expected to increase.
National inflation has been moving since April above the Central Bank’s target (2% excluding fresh produce) and accelerated in August to 2.8% over one year, its highest level since 2014.
Japan out of step
But the BoJ continues to believe that the conditions are not yet in place for monetary tightening in Japan, notably due to a lack of sufficient wage increases to create a virtuous circle of growth.
For structural reasons, “wage growth has been rather stable around 1% year on year so far” in Japan, a much more moderate level than in most other OECD countries, and the recovery post-pandemic has been slower than in other major advanced economies, also agreed UBS economist Masamichi Adachi in a recent note.
The BoJ decided on Thursday by surprise to extend its special aid package for businesses in the face of Covid-19, a further sign that it continues to believe that the Japanese economy is not yet out of the inn on this forehead.
However, it is becoming more and more complicated for the BoJ to remain ultra-accommodative because the other major central banks are seriously tightening the screw, like the American Federal Reserve (Fed) which on Wednesday raised its key rate by 0.75 percentage point for the third time in a row (it is now allowed to fluctuate within a range of 3.0 to 3.25%) and hinted at further increases by the end of the year.
This lag has forced the BoJ to considerably step up its purchases of Japanese government bonds for several months, and this is causing the yen to plunge as financial securities denominated in dollars are much more attractive.
“Ready at any time”
The BoJ used to emphasize that the depreciation of the yen is a rather positive factor for the Japanese economy, by boosting the profits of Japanese groups generated abroad.
But by putting into perspective the negative impact of the fall of the yen on the purchasing power of Japanese households, this message has become difficult for public opinion to digest.
Under pressure, the Japanese government says it is ready to intervene in the foreign exchange market to support the yen. But such an operation seems very complicated without consultation with Washington, and for many analysts, Tokyo’s guns are loaded with blanks.
“We are ready at any time” to intervene, Japanese Deputy Finance Minister Masato Kanda insisted on Thursday, according to statements reported by the Nikkei newspaper. Without this calming the fall of the yen in the immediate future.
“While foreign investors may continue to attack the yen and Japanese bond yields until the cycle of Fed rate hikes peaks, we believe the BoJ has no other choice than to maintain” its current ultra-accommodating policy, economist Shigeto Nagai said in a note from Oxford Economics on Thursday.
BoJ Governor Haruhiko Kuroda, a great craftsman of his ultra-accommodative monetary policy since 2013, will complete his second and last term in April 2023, but that should not change the situation either, according to Mr. Nagai.