Kuroda Insists Inflation Will Trigger Policy Change, Not the Yen.

025, Mar 2022

(Bloomberg) Bank of Japan Governor Haruhiko Kuroda said stable inflation was needed to trigger policy change at the central bank not yen weakness, in remarks that appeared aimed at cooling speculation of possible stimulus tweaks driven by the sliding currency and signs of heating prices.

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Speaking in parliament after the yen breached the 122 mark against the dollar for the first time in more than six years, Kuroda stuck to his view that a weak Japanese currency was positive for the economy overall and his stance that BOJ stimulus must continue.

“I think it’s appropriate for the BOJ to aim for stable, sustainable inflation and keep up current powerful easing tenaciously to prop up the economy recovering from the pandemic,” Kuroda said. 

The current cost-push inflation, driven by higher energy prices, won’t cement inflation above the BOJ’s target of 2% in a stable way, Kuroda said, warning that it could cut disposable household income and corporate earnings and harm the economy.

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Data on Friday showed that while inflation in Tokyo increased 0.8% in March from a year ago, the biggest margin in more than two years, energy prices rose 26%, for the fastest gain in 41 years. Nationwide inflation is expected to accelerate toward 2% from April when the effect of cheaper mobile phone fees starts fading out. 

The remarks suggest the governor is continuing to hunker down on his view that the BOJ must keep up its easing measures and that the direct impact for households and the economy of costlier energy require help from elsewhere.

Finance Minister Shunichi Suzuki said earlier Friday that Prime Minister Fumio Kishida is likely to instruct his government to come up with a fresh economic package next week.

Read More: Japan’s Kishida to Order Economic Package Next Week, Suzuki Says

Kuroda’s remarks come as markets explore the policy implications of the yen’s sharp moves.

Economists at JPMorgan Chase & Co (NYSE:JPM) say the weaker yen may be a catalyst for the BOJ to tweak its yield curve control framework as the bank needs to respond to the changing environment. 

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Societe Generale (OTC:SCGLY) SA strategist Albert Edwards sees potential for the yen to weaken to around 150 per dollar. The yen was worth around 121.35 per dollar early in the afternoon in Tokyo. 

Back in 2015, the BOJ chief made comments interpreted as defending the yen around the 125 mark, a level that became known as the Kuroda line.

©2022 Bloomberg L.P.

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