© Reuters. Cash and banknotes of Japanese yen are seen on this illustration image taken June 16, 2022. REUTERS/Florence Lo/Illustration
By Leika Kihara and Yoshifumi Takemoto TOKYO (Reuters) – The Financial institution of Japan’s resolve to maintain borrowing prices ultra-low is inflicting a “detrimental spiral” of yen weak point that highlights the necessity to tweak its yield cap coverage, stated Yuri Okina, a member of a key authorities panel, including to criticism of the BOJ’s coverage. BOJ Governor Haruhiko Kuroda has vowed to defend the financial institution’s 0.25% cap for the 10-year Japanese authorities bond (JGB) yield, to assist the economic system with very low rates of interest. The coverage divergence between the BOJ and the U.S. Federal Reserve, which is mountaineering charges aggressively, pushed the yen to a 24-year low of 136.71 per greenback on Wednesday. It bounced again barely to round 135.46 on Thursday afternoon. “Latest strikes are very sharp and problematic. The yen may weaken additional because the Japan-U.S. rate of interest hole widens,” stated Okina, a former BOJ official. “We’re seeing a detrimental spiral during which Kuroda’s feedback stressing the necessity to defend the 0.25% cap are accelerating yen falls,” she informed Reuters on Wednesday. To keep away from additional yen falls, the BOJ may tweak its message and stress extra that yen strikes can be taken into consideration in guiding financial coverage, she stated. There was additionally scope to fine-tune the BOJ’s yield curve management (YCC) coverage and permit long-term rates of interest to maneuver extra flexibly round its goal, Okina stated. “It is arduous to lift charges drastically now as a result of Japan should stop its economic system from slipping into stagflation,” she stated. “However in some unspecified time in the future sooner or later, the BOJ wants to think about permitting the 10-year yield to maneuver at a wider vary, as an alternative of pinning it” round zero, Okina stated. Beneath YCC, the BOJ units a -0.1% goal for short-term charges and that for the 10-year JGB yield round 0%. It has additionally pledged to purchase limitless quantities of 10-year JGBs each day to defend a 0.25% cap round its 10-year yield goal. Kuroda has repeatedly stated the BOJ doesn’t goal foreign money charges in guiding financial coverage, and brushed apart calls from some lawmakers to counter yen falls by tweaking YCC.
Some analysts and opposition lawmakers have lately escalated their criticism over the BOJ’s ultra-loose coverage, blaming it for inflicting an unwelcome yen tumble that’s inflating the price of importing gas and uncooked materials. Okina is presently a member of a authorities panel debating Prime Minister Fumio Kishida’s progress methods. She can also be head of personal suppose tank Japan Analysis Institute.