BOJ may tilt more toward hawkish stance with fragile yen
— The yen’s slide to fresh 34-year lows is likely to force Bank of Japan Governor Kazuo Ueda to walk a delicate line in guiding monetary policy this week as he tries to maintain a calibrated path to exiting ultra-easy rates without upending the currency.
The BOJ chief will be mindful of avoiding the episode of 2022, when his predecessor’s dovish remarks triggered a yen plunge that forced Tokyo to intervene to prop up the currency.
Ueda has ruled out the chance of aggressive rate hikes due to Japan’s fragile economy, which has in part fed expectations of low-for-longer rates and emboldened yen bears.
In recent comments, however, Ueda has dropped hints the BOJ could raise borrowing costs again later this year, although that has hardly done anything to reverse the yen’s inexorable slide over the past few months.
The BOJ is expected to keep interest rates steady at a two-day meeting ending on Friday, and project inflation to stay near its 2 percent
target in coming years on prospects of steady wage gains.
The prospect of Japanese rates staying low for an extended period and expectations for a delayed start to U.S. rate cuts have continued to push down the yen despite aggressive jawboning by Japanese authorities.
The yen fell below 155 to the dollar on Thursday, a level seen as authorities’
line in the sand that heightens the chance of currency intervention.
The dollar rose as high as 155.37 yen on Wednesday, its strongest since mid-1990, before falling back in choppy trading. It was last at 155.29 in Asia on Thursday.
“There is no change to our stance. We’ll watch market moves carefully and respond appropriately,” Finance
Minister Shunichi Suzuki told parliament on Thursday, when urged by an opposition lawmaker to intervene in the currency market.
Chief Cabinet Secretary Yoshimasa Hayashi also said Japanese authorities were ready to take action as needed.
“It’s important for currency rates to move stably reflecting fundamentals. Excessive volatility is undesirable,” Hayashi told a press conference. He declined to comment on recent yen moves, or on the possibility of currency intervention.
Markets are focusing on whether BOJ’s Ueda will offer a more hawkish tone on prospects of a near-term interest rate hike.
“The BOJ won’t hike rates just for the sake of preventing yen declines,” said former BOJ official Nobuyasu Atago.
“But he may repeat his recent commentary that the BOJ would respond if yen moves have a big impact on the economy and prices. If that keeps markets guessing the timing of a rate hike could be pushed forward, it would be effective jawboning.”