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BOJ will be ‘alarmed’ if yen rises above 130 to the dollar, says ex-deputy minister

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The Bank of Japan will be “alarmed” if the yen weakens beyond 130 to the dollar, according to Japan’s former deputy finance minister for international affairs, Eisuke Sakakibara.

The yen was trading at 123.77 to the US dollar on Wednesday morning in Asia.

The Japanese currency fell more than 5% against the greenback in March, when the yen is traditionally considered a safe haven currency. Still, the yen was hit hard as geopolitical unrest, such as the Russian-Ukrainian war, rocked global markets.

The weaker yen comes amid expectations that the Bank of Japan would be slower than other central banks to tighten monetary policy.

While global peers such as the US Federal Reserve have started raising interest rates and are expected to take more aggressive action to control inflation, the Japanese central bank has continued its massive stimulus measures.

The yen’s current levels against the greenback won’t be a problem, said Sakakibara, previously called “Mr. Yen” when he led several currency interventions in the 1990s. was trading between 120 and 125 about four or five years ago.

A Japanese national flag flies in front of the Bank of Japan headquarters in Tokyo, Japan, September 27, 2021. Japan’s central bank has for years adopted an ultra-loose monetary policy in a bid to meet its inflation target always elusive.

Toru Hanai | Bloomberg | Getty Images

“This depreciation of the yen is a reflection of the appreciation of the dollar against the yen and the market expects that the depreciation of the yen will probably continue and some people expect that the dollar- yen is getting closer to 130,” said Sakakibara, currently president of the Institute for Indian Economic Studies.

“If it goes to 130 — and beyond 130 — it can create problems,” he told CNBC’s “Asia Squawk Box” on Tuesday. The Bank of Japan “will be alarmed” if the dollar-yen exchange rate rises above 130, he added.

Japan’s inflation target

Bank of Japan Governor Haruhiko Kuroda said on Tuesday that the Japanese currency’s recent movements were “somewhat rapid”, but reiterated that a weak yen helps the Japanese economy as a whole, Reuters reported.

Under Kuroda’s leadership, Japan’s central bank has for years adopted ultra-loose monetary policy in an attempt to meet its ever-elusive inflation target.

“I don’t see the Bank of Japan being particularly upset if you keep the inflation target front and center,” said Manpreet Gill, head of fixed income, currency and commodities strategy at Standard Chartered Private Bank.

The current situation is actually helping Japan’s central bank to hit inflation, he said, although that might not last as recent yen weakness has been fueled by dollar strength, and several rate hikes by the Fed have already been factored into the price.

Meanwhile, NatWest Markets’ Galvin Chia said the Bank of Japan was currently in a “difficult situation”.

“Markets have really jumped on this idea, you know, as we’ve seen over the past couple of weeks, that the yen should depreciate,” said emerging markets strategist Chia.

“My personal view is that the BOJ is rightly more concerned with the pace of [the yen’s] depreciation … and a kind of volatility that can create around financial markets as opposed to level,” he said.

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