BOJ’s Kuroda Warns Recent Sharp Yen Drop May Hit Businesses

Traders bought the yen on Kuroda’s comment, and helped push the dollar down by 0.22% to 126.28 yen on Monday

 

Bank of Japan governor Haruhiko Kuroda said on Monday the yen’s recent moves have been “quite sharp” and could hurt companies’ business plans, offering his strongest warning to date of the risks stemming from the currency’s depreciation.

Kuroda said there was no change in his assessment that overall, a weak yen was good for the economy since it boosts the value of profits Japanese firms earn overseas.

But he added the yen’s drop to around 125-126 yen against the dollar, from around 115-116 yen a month ago, was volatile enough to hurt companies.

“The recent falls in the yen, which lost about 10 yen to the dollar in about a month, is quite sharp and could make it hard for companies to set business plans,” Kuroda told parliament.

“In that sense, we need to take into account the negative effect” of a weak yen, he said.

Traders bought the yen on the comment, helping push the dollar down by 0.22% to 126.25 yen on Monday.

 

Two-Decade Lows

Kuroda, however, repeated his view the BOJ must maintain its massive stimulus programme to support a fragile economic recovery.

The yen has slid to two-decade lows against the dollar on prospects of widening US-Japan interest rate differentials, with the BOJ seen maintaining ultra-low interest rates even as the Federal Reserve plans steady pace of rate hikes.

A former currency diplomat, Kuroda has consistently preached the merits of a weak yen despite growing concern among lawmakers that sharper yen falls may hurt the economy by inflating already rising import costs for fuel and food.

His latest remarks are closer to those of Finance Minister Shunichi Suzuki, who on Monday repeated a warning he made last week that recent yen falls could be bad for the economy.

“In a situation like now when companies have yet to sufficiently raise prices and wages, a weak yen isn’t desirable,” Suzuki said. “In fact, it’s a bad yen decline.”

Suzuki declined to comment when asked whether Tokyo was ready to intervene in the currency market to stem yen declines.

“Kuroda may have aligned his view a bit closer to that of the finance minister, to avoid giving markets the impression the two aren’t seeing eye to eye on this issue,” Takeshi Minami, chief economist at Norinchukin Research Institute, said.

“But I don’t think the BOJ will do something to influence currency rates because that’s something beyond its mandate.”

 

  • Reuters with additional editing by Sean OMeara

 

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Sean OMeara

Sean O’Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.