The Bank of Japan’s monetary policy could become a tool to contain price increases by strengthening the yen. This hypothesis emerges as the central bank evaluates a possible increase in interest rates during the month, in response to inflation also fueled by the conflict in the Middle East, which has contributed to raising the costs of oil imports.
The government opens up the possibility of strengthening the yen
Ryosei Akazawa, Japan’s top trade negotiator and head of the Ministry of Economy, Trade and Industry, addressed the topic during a television program. Responding to a suggestion made by an economist, he said strengthening the yen through central bank policy could be one possible option.
Akazawa also stressed that the central bank’s 2% inflation target is now “quite close” to being achieved, while real interest rates remain “quite low.”
The proposal of the economist Hideo Kumano
During the same program on public broadcaster NHK, Hideo Kumano, chief economist at the Dai-ichi Life Research Institute, suggested that a strengthening of the yen of between 10% and 15% could help reduce price increases across the economy.
According to Kumano, a stronger currency would help in particular to contain import costs, including energy, with positive effects also on food prices, which represent a significant share of household spending.
The expectations of the financial markets
Financial markets are already pricing in the possibility of intervention by the Bank of Japan. Currently, a probability of around 60% is estimated that the institute will decide to increase interest rates at the meeting scheduled for April 28.
The risks associated with war in the Middle East
Central bank deputy governor Ryozo Himino said monetary policy decisions will take into account the size and duration of the economic shock caused by the conflict in the Middle East.
It also highlighted the need to pay attention to the risk of stagflation, which is a situation where weak economic growth and high inflation occur simultaneously.
A delicate choice for the Bank of Japan
Overall, the Bank of Japan faces a complex decision: balancing the need to contain inflation with that of supporting economic growth. The strengthening of the yen through a possible monetary tightening represents one of the options on the table, but its impact on the national economy and global dynamics remains to be carefully evaluated.
