Bank of Japan President warns that there will be consequences for tightening policy too soon. Yen breaks 140 for the first time in half a year

Kazuo Ueda, governor of the Bank of Japan (central bank), said on Thursday (25th) that although inflation at record highs is restraining the economy, a sudden change to the long-standing ultra-loose monetary policy will have consequences, and it seems that there is no intention to change the current policy.

Ueda accepted his first joint visit since taking office in April at the Bank of Japan headquarters. He told reporters that the Bank of Japan has not yet achieved the stable and sustainable goal of a 2% price growth target, and the core inflation rate is still gradually rising.

Japan’s consumer price index (CPI), which excludes fresh food and energy, rose at an annual rate of 4.1% in April, the largest increase since 1981, indicating that Japanese consumers, accustomed to years of deflation, are now feeling the pressure of rising prices .

“It’s clear to me that inflation has become a burden. But energy price increases are starting to fade, and there will be slower growth going forward,” Ueda said.

In view of this, the Bank of Japan is reluctant to adjust the monetary easing policy in a hurry. “On top of falling prices, monetary tightening will have a cumulative effect that will have a serious negative impact on employment and other areas,” Ueda said.

Ueda emphasized that the 2% price stability target should not be adjusted easily and will continue to push the Bank of Japan towards this target.

When the Bank of Japan may stand still, many officials of the US Federal Reserve (Fed) made hawkish speeches, raising the probability of raising interest rates by 1 yard (25 basis points) in June and July each. The interest rate gap between the United States and Japan further widened, causing Japan The yuan was under heavy selling pressure.

The yen once depreciated by 0.5% on Thursday to 140.23 yen to 1 dollar, which was the first time since November last year to break through the 140 mark.The yen has depreciated by 13 yen against the dollar from its January high and is also weak against major currencies such as the euro and the British pound.

Brad Bechtel, currency strategist at Jefferies, said that the yen has changed so much against the dollar that it may see the yen fall below 143 next week.

Adjust YCC?

Among the easing policies of the Bank of Japan, the “Yield Rate Curve Control” (YCC) policy, which plays the most critical role, observers are looking for clues of when Ueda may relax YCC. According to the current policy, the Bank of Japan controls the yield range of the Japanese 10-year government bond at ±0.5%.

Ueda said that regarding the continuation or adjustment of the YCC policy, if the balance of benefits and side effects changes, there may be adjustments.

The Bank of Japan announced at its April meeting that it will conduct a broad review of policies over the past 20 years. Ueda said the review is estimated to take 12 to 18 months, and that policy adjustments may be made during this period if necessary.