(Bloomberg) -- Bank of Japan Governor Haruhiko Kuroda weighed in with his strongest remarks on the yen in recent days, in an apparent bid to slow down movement in Japan's weakening currency and its impact on a fragile economy.
“If you look at moves in foreign exchange rates over the longer term such as the past decade, fluctuations have gotten smaller but as pointed out, the recent moves in foreign exchange rates seem somewhat rapid,” Kuroda said in response to questions in parliament Tuesday.
Following Kuroda's remarks the yen strengthened to 122.38 against the dollar from around 122.86 earlier in the morning session. The governor spoke a week after the yen hit the 125 mark, its weakest since summer 2015 after the central bank ramped up its defense of a bond-yield ceiling.
“Kuroda probably meant to make general comments,” said Daisuke Karakama, chief market economist at Mizuho Bank in Tokyo. “But how they are perceived in the market can be different, as was the case in 2015. The current yen level could even become a new ceiling.”
BOJ Determination
The BOJ showed last week how determined it would be in keeping interest rates locked near zero despite skyrocketing inflation across the globe and the risk of weakening the yen to damaging levels. With a four-day long unlimited bond buying spree, it signaled it would not relent until it was convinced a revival in inflation was sustainable.
But the fall in the yen is still a concern for Japan's policy makers as it amplifies the effect of the fastest rising energy prices in four decades, with the economy already feared to have shrunk again last quarter.
The weaker currency is also fueling speculation that the central bank may tweak policy in response, a possibility that Kuroda repeatedly denied Tuesday.
“They were the clearest signal to date from Kuroda that the BOJ is not thrilled by the yen moves of recent weeks,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney, referring to the governor's comments on the yen.
Kuroda Line
Market participants have been closely watching the governor's comments to gauge if there has been a shift in his tolerance for a weaker yen. In 2015, Kuroda made comments interpreted as defending the yen around the 125 mark, a level that became known as the Kuroda line.
“We will continue to watch foreign exchange rates closely as it has a large impact on the economy and inflation,” Kuroda said Tuesday. “It's important for currency rates to reflect the fundamentals of the economy and finance.”
Kuroda's reiteration that a weaker yen is still positive for the economy overall indicate that he is looking to slow currency moves for now rather than set a new line in the sand or reinforce the earlier mark.
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Currency intervention is highly unlikely other than with the co-operation of other monetary authorities and only comes onto the radar if there are much bigger or more disorderly moves, said NAB's Attrill. It is also the prerogative of the Ministry of Finance, not the BOJ, he added.
Global Divergence
By keeping interest rates at rock-bottom levels, the BOJ's policy stance is diverging from its global peers as they raise interest rates to curb accelerating inflation.
Its bond-buying actions last week indicated Kuroda's resolve to stick with monetary stimulus even if that results in further falls in the yen, something that will strain domestically orientated businesses, along with households.
The impact of a weaker exchange rate affects different companies and consumers in diverse ways. It pushes up the yen costs of dollar-denominated energy imports putting pressure on businesses and households, while at the same time boosting the profits of Japan's biggest exporters including Toyota Motor Corp.
“Kuroda can't and won't say a weak yen is bad for the economy overall. But as doubt over the benefit of a weak yen grows, he can't simply sound happy about it,” Mizuho's Karakama added.
Prime Minister Fumio Kishida reiterated Tuesday morning his commitment to ensuring that soaring prices don't hamper the economy's recovery. Last week he ordered additional economic measures to ease the pain of soaring energy prices.
The premier is trying to get ahead of the problem to ensure it doesn't sour voters on him ahead of summer elections.
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