BOJ chief sees no direct impact of market operations on yen movements

Bank of Japan Governor Haruhiko Kuroda meets the press after talks with Japanese Prime Minister Fumio Kishida at the Prime Minister’s Office in Tokyo on March 30, 2022. (Kyodo)

TOKYO (Kyodo) — The Bank of Japan’s operations to buy unlimited amounts of 10-year Japanese government bonds to stem a rise in long-term interest rates are not having a “significant” impact. and direct” on currency movements, Governor Haruhiko Kuroda said Wednesday.

Speaking to reporters after meeting Prime Minister Fumio Kishida, Kuroda said currency movements should be stable and reflect economic fundamentals, after the Japanese yen fell to a low of over six earlier this week. years.

The recent “slight” drop in the yen against the dollar comes as Japanese importers’ demand for US dollars remains strong following soaring energy prices, and the US Federal Reserve has clarified its stance on rising interest rates, the BOJ chief said.

“I don’t think our market operations have a large direct impact on currency movements,” Kuroda told the prime minister’s office.

“I told the Prime Minister that it was desirable for exchange rates to move in a stable manner and reflect economic fundamentals,” he said, adding that he had spoken about the impact of the Russian invasion of Ukraine on the global economy.

After the Kuroda-Kishida meeting was reported by the media, the dollar quickly fell below the 121.50 yen line. The dollar, which broke above the 125 yen line earlier this week, was trading in the upper 121 yen zone in the afternoon.

After the meeting, Chief Cabinet Secretary Hirokazu Matsuno said it was important for the government to maintain close communication with the BOJ.

“Currency market stability is important and rapid moves are not desirable,” Matsuno told a press briefing. “We will closely monitor developments in the foreign exchange market, in particular the recent depreciation of the yen, and their impact on the economy.”

The BOJ fought to stop any further rise in Japanese 10-year government bond yields by announcing unlimited bond purchases at a fixed rate of 0.25% for this week. The BOJ bid did not attract any bids on Wednesday.

The yield on Japan’s benchmark 10-year government bond was 0.230% on Wednesday morning, below the implied upper limit of 0.25% set by the BOJ as part of its curve control program. rate designed to keep borrowing costs low for households and businesses.

The BOJ’s attempt to keep the benchmark yield below the upper bound, however, helps the yen weaken when US Treasury yields are on an uptrend.

A weak yen cuts both ways as it boosts profits for Japanese exporters overseas when brought home, but inflates the costs of energy, food and other imported items – a deal breaker. head for resource-scarce Japan.

The divergent policy trajectories of the BOJ, which is expected to maintain its ultra-accommodative monetary policy for an extended period, and the more hawkish Fed have weakened the yen sharply against the dollar.

Kuroda, who was once Japan’s top monetary diplomat, said a weak yen was positive for the economy and commodity inflation would not prompt the BOJ to change its monetary policy.

The BOJ is seen as an outlier as other major central banks like the Fed and the European Central Bank struggle to keep inflation under control.

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