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.
It is necessary to be attentive to developments in financial and foreign exchange markets and their impact on economic activity and prices in Japan, the BoJ stressed.
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 spike in energy prices and the levels of inflation observed 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 BoJ’s 2% target excluding fresh produce and accelerated to 2.8% in August over one year, a new record since 2014.
But the BoJ continues to believe that the conditions have not yet been met for monetary tightening in Japan, in particular for lack of sufficient wage increases to create a virtuous circle of growth.
However, it is becoming increasingly difficult for the BoJ to remain ultra-accommodative, a policy characterized by its negative rate of 0.1% on bank deposits with it (to encourage them to lend more) and its purchases unlimited amounts of Japanese government bonds to cap their ten-year yields at 0.25%.
Because the other major central banks are seriously tightening the screw, such as the American Federal Reserve (Fed), which on Wednesday raised its rate by 0.75 percentage points for the third time in a row and which now does not plan to release the restraint before 2024.
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This is forcing the BoJ to considerably step up its purchases of Japanese government bonds for several months, and this is causing the yen to plunge because financial securities denominated in dollars are much more attractive.
The BoJ used to emphasize that the fall 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 to digest for Japanese public opinion.
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, the guns of Tokyo are loaded white.