Minutes of the policy meeting of the Bank of Japan in April showed that some of the board members had been concerned about the excessive volatility in the Japanese currency. They had been concerned that it would disrupt the plans of corporate businesses, which highlighted the challenges that policymakers had to face because of the sharp decline in the yen.
Conflict Amongst BOJ Members
There were also board members of the Bank of Japan who stressed the need of maintaining the massive stimulus scheme of the central bank for supporting an economy that is still quite fragile. This was reflected in the minutes of the meeting that were released on Wednesday. This indicated that they did not intend to change the ultra-low interest rates in Japan for stemming the slide of the Japanese yen.
Some members had said that the Bank of Japan needs to inform markets that their goal is to ensure price stability and not to control the movements of the exchange rate. But, the minutes also showed that some members had expressed concerns about the impact of the excessive fluctuations in the short-term in the foreign exchange market, some of which can now be seen. They had been worried that this would create uncertainty about the future, making it difficult for companies to come up with their plans.
There was also a member who said that the economy could benefit from a weak yen in such a situation, when inflation was low and output was large. During its meeting in April from 27th to 28th, the Japanese central bank had stuck to its commitment of keeping interest rates low. They bought bonds daily for defending their yield cap and this resulted in a sell-off in the yen.
A Weak Yen
The weakening Japanese yen poses a challenge for he policymakers because it is taking its toll on the economy. The cost of importing raw material goods and fuel are already rising and a declining yen means these are getting costlier. On Wednesday, the yen fell against the US dollar to a low of 136.71, which was a low of 24 years.
Investors have been focusing on the contrast between the ultra-loose policy of the BOJ and the aggressive interest hikes planned by the US Federal Reserve for taming inflation. Yen was last trading at a value of 136.32. Even though inflation surpassed the 2% target of the Bank of Japan back in April, the governor stated that the bank would not make any changes to its policy.
Haruhiko Kuroda said that they would only make changes if strong demand results in price rises and wages also get a boost. Some board members of the BOJ said in the April meeting that inflation could move beyond expectations if wage hikes also rise. However, others did not agree with this stance. One member said that the monetary policy in Japan is not for curbing inflation, as in Europe and the US, but to overcome low inflation.