The private sector members of a crucial government panel have advised the Bank of Japan (BoJ) to closely monitor the potential adverse effects of significant yen currency drops on prices, which may result in “excessive” price increases that negatively impact private demand. Despite exhibiting favourable trends in corporate profits, share values, and salaries, consumption has been lacklustre due to the yen’s continuous depreciation causing inflation. In a proposal submitted to the Council on Economic and Fiscal Policy (CEFP), they warned that as sharp yen declines and surging commodity prices might have substantial price implications, close monitoring is necessary. They added that excessive price rises could harm private demand, and the BoJ should guide monetary policy appropriately to attain its 2% inflation goal in a sustainable and stable way. The Japanese authorities were presumed to have interceded at least twice last week to bolster the yen when it reached levels not seen in more than three decades. However, the yen continues to come under pressure because of the significant disparity between Japanese interest rates, still close to zero despite the BoJ’s landmark decision to abandon negative rates in March, and significantly higher US and other rates drawing funds away from the yen. BOJ Governor Kazuo Ueda has indicated that the central bank will scrutinize how the yen’s recent fluctuations impact the economy and inflation. Proposals from the private sector generally form the basis for discussions at the top economic council, which sets the government’s long-term economic strategy and objectives. (Reporting by Makiko Yamazaki and Kentaro Sugiyama; Editing by Tomasz Janowski)
Based on the latest developments, it seems that the Japanese authorities have intervened to support the yen twice in recent weeks. This action follows the currency’s significant decline, reaching its lowest level in over three decades. However, the yen remains under pressure due to the considerable gulf between Japanese interest rates, which remain close to zero, and significantly higher US and other rates, drawing funds away from the yen. The Bank of Japan (BoJ) has indicated that it will assess how these events impact the economy and inflation. Private-sector members have called for caution regarding the potential consequences of sharp falls in the yen, warning that excessive price hikes stemming from such events could negatively influence private demand. As a result, they recommend that the BoJ should manage monetary policy judiciously to ensure the achievement of its 2% inflation objective in a sustainable and stable manner. These recommendations will likely feature in debates at the Council on Economic and Fiscal Policy (CEFP), which determines the government’s long-term economic goals and policies.
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