Bank of Japan’s Chief Defends Monetary Easing Amid Yen’s Decline

Kazuo Ueda, the current head of the Bank of Japan, has publicly supported the institution’s continuous implementation of monetary easing policies, despite the ongoing depreciation of the yen. He justified this by pointing out that, although the headline inflation rate is above the set target of 2%, the core inflation rate remains below this benchmark.

Ueda made these comments while attending the ECB Forum on Central Banking in Portugal. This event was attended by officials from the central banks of the United States, Europe, and the United Kingdom. During his address, Ueda noted that the value of the Japanese currency is subject to a multitude of influences, including the policy decisions made by these international central banks.

Despite his defense of the current monetary policy, Ueda expressed some uncertainty about the stability of inflation rates in Japan over the forthcoming years. However, he did acknowledge that should the central bank gain substantial confidence in future inflation stability, they would consider adjusting their policy approach accordingly.

The stance of the Bank of Japan stands in stark contrast to the fiscal strategies employed by the central banks of the US, UK, and Europe. These institutions have chosen to hike interest rates as a means of battling inflation, whereas the Bank of Japan has opted for an approach centered around ultra-low rates and market liquidity enhancements.

The influence of international monetary policy on the yen was further highlighted when the US dollar saw a brief surge to a seven-and-a-half-month high against the Japanese currency. This followed comments made by Jerome Powell, Chair of the US Federal Reserve, hinting at potential further restrictions on monetary policy.

As the yen continues to face selling pressure due to the anticipated widening of the interest rate gap between Japan and the US, Japanese authorities have issued verbal warnings. Ueda reassured that they are closely monitoring the situation. However, he emphasized that the final decision to intervene in the financial market lies in the hands of the Ministry of Finance.

In conclusion, while the head of the Bank of Japan is defending the current monetary easing policy amidst a weakening yen, he acknowledges the potential need for change if confidence in future inflation stability increases. Meanwhile, the bank continues to carefully observe the global economic landscape and the impact of other central banks’ policies on the Japanese economy.