Bank of Japan Maintains Monetary Easing... Dollar-Yen Rate Breaks 130 Yen for the First Time in 20 Years (Comprehensive)

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] On the 28th, the Japanese yen surpassed the 130 yen per dollar mark for the first time in 20 years. Amid growing concerns in Japan due to the sharp depreciation of the yen, the Bank of Japan (BOJ) decided to maintain its existing large-scale monetary easing policy.

According to Bloomberg News and Japan's Nihon Keizai Shimbun, the yen-dollar exchange rate briefly exceeded 130 yen per dollar during afternoon trading on the same day. Nihon Keizai reported that it is the first time in 20 years since April 2002 that the yen-dollar exchange rate has surpassed the 130 yen level. The yen-dollar exchange rate had maintained the 120 yen range until the morning of the day but rose further after the BOJ announced the continuation of its monetary easing policy.

Earlier, through a two-day monetary policy meeting held from the previous day to the day of the announcement, the BOJ decided to maintain its short-term policy rate at -0.1% and long-term interest rate at 0%, continuing its short- and long-term interest rate control. Japan continues this monetary easing policy to stimulate the economy. The decision was made with 8 votes in favor and 1 against.

The BOJ also decided to conduct unlimited purchases of 10-year government bonds at a fixed rate of 0.25% through "fixed-rate operations (open market operations)" to prevent a rise in long-term interest rates in the market, to be carried out every business day. Nihon Keizai explained that this is the first such measure since its introduction in September 2016.

The BOJ revised upward its forecast for this year's consumer price inflation rate to 1.9% year-on-year, considering rising prices of energy and raw materials, up from the 1.1% forecast released in January. Since setting a 2% inflation target in 2013, the BOJ views the current price increases as temporary, caused by cost factors rather than wage increases, and does not expect them to continue.

The problem is the ongoing yen depreciation trend. This increases the burden on companies, leading to higher prices for products and services, which in turn expands the cost burden on consumers. In Japan, this sharp yen depreciation is being labeled as "bad yen depreciation," raising concerns that it will negatively impact the Japanese economy.

BOJ Governor Haruhiko Kuroda emphasized the need to continue monetary easing during a lecture at Columbia University in the United States on the 22nd. However, Nihon Keizai reported that if the yen depreciation continues as is, the BOJ may face pressure to change its policy within the year. Possible changes include raising the short- and long-term interest rate caps from the current 0.25% to 0.5% or reconsidering forward guidance.

Meanwhile, the BOJ lowered its forecast for this year's real Gross Domestic Product (GDP) growth rate from 3.8% to 2.9%, while raising next year's real GDP growth forecast from 1.1% to 1.9%. The BOJ explained that this adjustment reflects the impact of the resurgence of COVID-19 and rising energy prices on this year's economy.

This content was produced with the assistance of AI translation services.