MNI INSIGHT: Few BOJ Tools As Weak Yen Drives 'Bad' Prices Up

A weaker yen driven by higher energy import costs is driving cost-push inflation and hitting the bottom line for many companies and consumers and that has the Bank of Japan vigilant, but with few tools to respond immediately, MNI understands.

Energy price gains are putting pressure on companies to raise retail prices as the yen weakened to as much as 117.88 against the USD on Monday, the highest level since January 2017 as Russia’s invasion of Ukraine upends global oil and gas markets and cascades into a "bad price rise" for consumers paying more for petrol and companies facing higher input costs.

But the BOJ is watching further downstream aspects like higher utility prices that are only evident with about a six months lag.

The BOJ sees sustained inflation of 2% led by wages as key for its price target, and has a USD/JPY range of 105 to 125 as a guide. But it does not intervene in the currency markets or normally state a preferred level, see: MNI INTERVIEW: BOJ Unruffled On Yen, Eyes Govt Reax If 120 Hit.

On the other hand, a former BOJ executive had earlier discussed a stronger yen on Fed tightening.

The BOJ board meets this week to review policy and is expected to comment on the impact of energy costs on the economy and revise up the median forecast for inflation in fiscal 2022 starting in April from a 1.1% rise made in January, but not change policy.