BOJ still reeling from yen complications, looming inflation at the door

Hirokazu Matsuno, the Chief Cabinet Secretary, has commented that Japan has its eyes set on the central bank to take necessary measures in appropriation to the yen’s fallout and the surging cost of living. The currency’s unanticipated decline to a 24-year low has to be countered carefully.

Thankfully, Tokyo’s willingness to set back standards in the market has been emphasized by an official spokesperson. Matsuno held a news conference to address the issue in a more formal setting. He mentioned that they seek help from the Bank of Japan (BOJ), which must work intently with the Government and take proper measures as deemed necessary.

The revision of his official statements from the past comes in front of a policy conference led by BOJ that might end on Friday. It’s a two-day meeting that is part of their duties.

BOJ is currently dealing with a handful of matters of its own; it is dealing with the backlash for the Dovish policy, which inclines toward low-interest rates and further tumbling the yen while giving priority to the imports of raw material sectors.

The U.S-Japan interest rates have had a rallying gap which is further broadening due to the U.S. rate hikes. On Wednesday, the Government was stunned to see the yen plummet to 135.58 per dollar.

If the yen doesn’t recover its footing, speculations have been made on BOJ being cornered to eventually resorting to more flexible measures. Like enabling interminable prices to rise higher, which is possibly modifying its yield control policy and regulations.  

Meanwhile, there was a research note released this week by a leading Japanese economist at Capital Economics. Tom Learmouth notes that BOJ is indeed being backed into a corner. The mere fact that Tokyo has to stage an intervention in the bond market to counter the yields only highlights the yen weakness. The JGB yields and the yen’s pressure might ultimately result in BOJ purchasing a break in the form of raising the bars for long-established market prices from 0.25% to 0.50%.

To defend the 0.25% cap for the decade-long Japanese Government bonds, BOJ spent about 3 trillion yen—$22.21 billion. On Wednesday, they’d proposed to heighten bond buying for a bandwidth of maturities. There has been a strong emphasis on the goal to keep the money policy really leisure to ensure the central bank wouldn’t cast its eyes on the narrowed exchange rates in sailing monetary policy, as per the notion shared by Haruhiko Kuroda, the Governor of BOJ.

This is seemingly hot news that has the markets setting the entire ordeal under scrutiny to figure out the chance of Japan staging an intervention in the currency market to rebuild the yen’s solid place on the charts. The joint statement which was dealt with behind closed doors and with the central bank voicing its concern about the matter, it’s only natural that competitive powerhouses are looking for a loophole while Tokyo makes its decision. They are certainly not above currency intervention, or other sizable options handed over to them, according to a Japanese Finance Ministry official who shed some light on the situation.

However, no hasty choices or immediate actions have commenced in the past 24 hours. The yen’s status is still being observed thoroughly. Authoritative figures are looking into the matter to determine if the yen’s position is volatile, and just how tense. This anonymous source also added that the Government didn’t put a cap on the currency levels at all, leaving space for movements as they closely monitor its moves.