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MNI STATE OF PLAY: BOJ's Kuroda Comfortable With Yen Fall

MNI (Tokyo)

Japan's central bank governor was relaxed in rare comments on the economic impact of a recently weaker yen.

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Bank of Japan yield curve control policy is not a cause of recent yen weakness against the dollar, Governor Haruhiko Kuroda said on Thursday after the two-day policy board meeting held steady, adding the currency decline is not a "bad" development.

The remarks by Kuroda were a rare evaluation on weak yen moves, signalling the role the currency is now playing in economic assessments. from energy costs to corporate profits and inflation and growth rates, see: MNI INSIGHT: BOJ Concerned Energy Costs Could Dampen Growth.

"The yen fell a little but ... it doesn't have an adverse impact on Japan's economy," Kuroda told reporters.

The positive impact of a yen fall is more than the impact of higher import costs, Kuroda said. He added that the impact of a weaker yen depends on economic and price conditions at that time. A weak yen isn't always good and strong yen isn't always bad, he said.


The BOJ also upgraded its assessment on prices, saying "inflation expectations have picked up." The previous view was "inflation expectations have been more or less unchanged."

"The year-on-year rate of change in the consumer price index, all items less fresh food, is likely to increase moderately in positive territory for the time being, reflecting a rise in energy prices," Kuroda said of the outlook for the inflation rate.

The BOJ upgraded its GDP forecast for the fiscal year started April 2022 to +2.9% from +2.7% in July but the median inflation forecast was unchanged at July's +0.9%. The BOJ also lowered its forecasts for real economic growth and the inflation rate this fiscal year, as expected, to 3.4% and to flat respectively in the wake of weaker private consumption and exports and production.

BOJ policy came in as expected with the economy largely continued moving in line with the baseline scenario despite persistent downside risks to the economy and prices.


The focus is shifting to whether the BOJ in December or January decides to extend the special fund measures to facilitate corporate financing, which are set to expire at the end of March.

Kuroda said that he hasn't decided on whether to extend or not extend the special fund-providing measures to facilitate corporate financing, which are set to expire at the end of March.

But the governor said that corporate financing is improving as a whole but smaller firms' financial positions remain severe.

"Looking ahead, if vaccinations spread, it will stimulate private consumption, which in turn will contribute to increasing sales and profits at the face-to-face services and support their financing," Kuroda said.

The BOJ Outlook Report voiced concern over smaller firms' weak financial positions, saying, "weakness has remained, particularly for firms in industries acing subdued sales due to the impact of Covid-19, as well as small and medium-sized ones."

Highlighting "small and medium-sized ones," which wasn't seen in the past Outlook Reports, indicated that the BOJ is more worried about smaller firms' financing and the bank will not end the special program.

The BOJ voiced concern over the near-term export and production outlook on supply-chain glitches, saying, "exports and production are expected to decrease temporarily due to supply-side constrains."