BOJ and Weak Yen: Updated May 14, 2024.

 

BOJ chief flags risk of weak yen swaying prices, hints at response

Article Source:  https://mainichi.jp/english/articles/20240508/p2g/00m/0bu/013000c

Ideas:

The Japanese weak yen has both positives and negatives for the Japanese economy. As a negative the weak yen, drives up import prices for domestic importers, who need to import a lot as Japan is a resource poor country.

At the same time, the weak Japanese yen is a positive for Japanese company exporters, which because of the weak yen, get more for their products in foreign countries, like the US.

The Japanese yen as been weak for sometime, but not maybe the Bank of Japan is coming under pressure to help the domestic economy, which importers are part of and because of the weak yen, have to pay more than if the yen were not so weak.

The goal of any central bank, including the Bank of Japan, is to downplay any serious impact as much as possible as to not cause harm related to the financial markets.

If the Bank of Japan has come out with some strong language about the weak Japanese yen, it quite possible the financial markets might have reacted even more strongly.

So in one sense, the Bank of Japan knows whatever it says, the financial markets are going to react so the Bank of Japan tries to reduce any impact on the markets.

Some Japanese firms might be more proactive, but unless all companies can increase wages the economy is still going to feel the effects of the weak yen, and the effects of inflation too.

Foreign exchange rate fluctuations are not good for anyone, as companies and financial markets want a steady increase or a steady decrease related to exchange rates so they can prepare ahead of time.

The BOJ is correct not to control the foreign exchange rate as the BOJ can be accused of being a foreign exchange manipulator and put on the list of countries that try to control foreign exchange rates.

Japan is more susceptible to foreign exchange rates than maybe some other countries, as Japan has to import a lot of what it needs compared to other countries.

But does the average Japanese citizen or household really know how much foreign exchange rates might be affecting their daily living, and or are they only concerned about how much food costs in the supermarkets these days.

The Bank of Japan might increases rates soon and again, but not that much as its still testing the financial markets and the economy, as to how much they can handle.

The Bank of Japan knows full well it has a balancing act to follow as a weak yen is both a positive and a negative for the Japanese economy.

And then add in the weak Japanese yen is a boom for foreign tourists who purchasing power increases with the weak yen, and there are record number of foreign tourists now entering Japan, which has become an economic driver for the Japanese economy.

Consumer inflation might be slowing, but any indication related to the Golden Week numbers during the first week in May travel and spending was down, as again, maybe inflation has something to do with it.

The Bank of Japan monetary policy was the complete opposite of the US or complete opposite of normal monetary policy as the Bank of Japan never increased the key rate like the US or the EU did during the time inflation was increasing.

It seemed the Bank of Japan was using the strategy of letting inflation run its normal course and let the economy adjust and fix itself, as the Bank of Japan, often said the Japanese economy was too weak to handle any interest rate increases.

Time will tell, in 2024, as to how much and when the Bank of Japan will increase the rate if at all.

Have a nice day and be safe!