On the 17th, Bank of Japan Governor Kazuo Ueda expressed the view that the impact of the continuing depreciation of the yen on the Japanese economy is not necessarily negative, as it has a positive effect on employee income at global companies. He gave his answer before the House of Representatives Finance Committee.
Governor Ueda said that while a weaker yen has the negative effect of increasing import prices, it also has a positive impact on increased exports, including consumption by inbound tourists (foreign visitors to Japan), and on corporate profits, especially those of global companies. “We can’t say for certain that low prices are negative for the economy.”
Although it is true that a major factor in the decline in real wages is the progression of inflation, and that the weaker yen is having an effect on rising import prices, the weaker yen is also increasing corporate profits and employment, including for small and medium-sized enterprises related to inbound tourism. pointed out the possibility of having a positive impact on employee income. He acknowledged that “most of the recent decline in real income is not due to the weaker yen.”
As upward pressure on prices continues, the depreciation of the yen due to differences in domestic and foreign interest rates is putting pressure on household budgets through rising import prices. While the governor has shown his understanding of the burden on household budgets, especially those in low-income brackets, due to price hikes in food and daily necessities, he plans not to conduct monetary policy that directly influences the exchange rate by explaining the merits and demerits of the weaker yen. clarified once again.
No prospect of achieving the price target
Regarding monetary policy, the governor said, “Our policy is to support economic activity and create an environment in which wages are likely to rise by persistently continuing monetary easing under the framework of yield curve control (long-term and short-term interest rate control, YCC).” was reiterated.
The government explained that the underlying rate of increase in consumer prices will gradually increase toward the 2% price target through fiscal 2025. There is great uncertainty as to whether the virtuous cycle of wages and prices that will be necessary to achieve this goal will be strengthened, and at present we are not yet in a situation where we can predict with sufficient certainty that the price stability target will be achieved sustainably and stably. ” he said.
When asked about the consistency between the Bank of Japan’s continued monetary easing and the government’s comprehensive economic measures, the two companies answered, “We recognize that the basic views on the price situation and the direction they are aiming for are consistent.” “I am doing so,” he said.
On this day, the Governor answered questions after explaining the outline of the “Report on Currency and Financial Adjustments,” which is submitted to the Diet once every six months. This is the first time that President Ueda, who took office in April, has given an overview.
In October, the Bank of Japan decided to make YCC management more flexible by allowing long-term interest rates to exceed 1%. 2023-25 The outlook for consumer prices has also been raised, with the index expected to exceed 2% for the third consecutive year through fiscal 2024. While speculations about early policy normalization have surfaced in the market, Governor Ueda has already expressed his recognition that “the certainty of achieving the outlook for achieving the price target is gradually increasing,” and he is closely monitoring the economic and price situation. His comments regarding his exit are attracting even more attention.
- We do not expect long-term interest rates to significantly exceed 1%.
- No impact on housing loans and corporate loans with variable interest rates – YCC amendment
- Recognizes that it is causing a burden on households and small and medium-sized enterprises – price rises
- Considering the prospect of achieving the price target, negative interest rates and YCC elimination
- The order of exit depends on the economic, price, and financial conditions at that time.
- The soft landing of the US economy has a positive impact on the Japanese economy as well.
- It is necessary to see if the US can smoothly reach its 2% price target
- As we get closer to achieving our price target, we will disseminate information on exits, including ETFs.
- Disposing of ETFs, considering two points: loss avoidance by the Bank of Japan and avoidance of market disturbances
(Updated with the President’s remarks added)