MNI STATE OF PLAY: BOJ's Kuroda Makes It Clear On Yen, Yields

Bank of Japan Governor Haruhiko Kuroda on Friday, reversing his previous remarks, voiced concern over the impact of the rapid yen’s fall on economy and prices, and said the recent movements are undesirable.

Kuroda also ruled out the view that the BOJ would change or tweak monetary policy to target foreign exchange rates. He did not elaborate on how the BOJ would cope with a weak yen with monetary policy.

As for risk factors, the BOJ, a rare move, clarified its concern over the impact of the recent rapid yen’s fall and specifically referred to forex moves in the policy statement. “It is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices.”

“It is vital for foreign exchange rates to move stably reflecting economic and financial fundamentals,” Kuroda told reporters at a conference that followed the latest policy review, (See: MNI BRIEF: BOJ On Hold, Keeps Policy Forward Guidance).

“For the time being, the BOJ will closely monitor the impact of Covid-19 and will support financing, mainly of firms, and maintain stability in financial markets, and will not hesitate to take additional easing measures if necessary, and also it expects short- and long-term interest rates to remain at their present or lower levels.”

NO ADJUSTMENTS

Kuroda also brushed off speculation of policy adjustments following rate hikes by the Federal Reserve and other central banks, and stuck to the stance of maintaining the current easy policy as Japan is still far from the achievement of 2% price target and the BOJ continues to prevent the 10-year interest rate from rising above 0.25%.

He added again that there is no plan to raise the upper end of the 10-year Japanese government bond interest rate from 0.25%.

“If (the BOJ) raises the upper end of the (perceived) range, the 10-year interest rate will rise above 0.25% and it will weaken the degree of easy policy,” Kuroda told reporters. He added that efforts to prevent the 10-year interest rate from breaching that level will be addressed via daily open market operations.