BOJ Shows No Move on Cheap Yen

Bank of Japan decided to maintain its monetary policy in the Monetary Policy Meeting held between Thursday and Friday. With the bank’s dovish attitude toward current moves of foreign exchange, Japanese yen depreciated against United States dollar immediately after the decision. BOJ recognizes that the cheap yen has not significantly affected Japanese economy.

The statement of MPM was simple. “The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1 percent. Regarding purchases of Japanese government bonds, CP, and corporate bonds, the Bank will conduct the purchases with the decisions mad at the March 2024 MPM,” says the statement. That’s it.

 

In the last meeting in March, the bank introduced major change in monetary policy, terminating its negative interest policy. It also announced that it will continue its JGP purchases with broadly the same amount as before. While it had been expected that Japanese yen would appreciate against US dollar, yen actually showed depreciation for a month with speculation of no change in interest rate gap between Japan and US.

 

In the press conference after the April meeting, JOB Governor, Kazuo Ueda, assessed current ongoing weakness of yen as having “had no major impact on underlying inflation so far.” While insisting that BOJ’s monetary policy would not target foreign exchange rate, Ueda indicated taking some action against yen’s depreciation. “If unignorable effect on underlying inflation rate occurs by yen’s depreciation, it will be an element of monetary policy decision.”

 

At the time of March meeting, Japanese yen marked around ¥150 to one dollar. It gradually depreciated to the level of ¥155 when April meeting started. Nikkei Shimbun reported detailed development in foreign exchange of the day two of April MPM. It showed a development from ¥155.50 to ¥156s during ten minutes after BOJ released its statement on 0:20 pm. On 3:20 pm, when Ueda revealed his recognition on foreign exchange, yen further depreciated to ¥156.80.

 

According to the analysis of Nikkei, the market focused on whether the bank would reduce the amount of JGB purchases, rather than whether it would change policy interest rate set between 0 to 0.1. One of the major reasons of cheap yen is that the interest rate of bonds has been kept low by large-scale purchase of JGB by the bank. In March meeting, Ueda said that the trend of monetary easing would be maintained for the time being, and he insisted no change on that in April meeting.

 

Ministry of Finance has also been taking close look at current development of yen’s depreciation. Minister of Finance, Shun-ichi Suzuki, emphasized that current cheap yen would have negative impact on commodity prices and he would take appropriate measures. Taking certain distance from foreign exchange, BOJ does not show hawkish attitude, focusing on “underlying inflation rate.”

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