Japan: "If inflation rises due to yen depreciation, interest rate hikes possible"

"Rising Prices of Imported Goods Due to Yen Depreciation... Possible Policy Changes"
IMF Forecasts 2% Inflation Achievement in Japan

Despite escaping negative interest rates, the value of the yen hit its lowest level in 34 years, as Kazuo Ueda, Governor of the Bank of Japan (BOJ), mentioned the possibility of additional rate hikes.

On the 18th (local time), Bloomberg reported that BOJ Governor Kazuo Ueda said that if inflation rises significantly due to the weak yen, interest rates could be raised again.

Kazuo Ueda, Governor of the Bank of Japan (BOJ), said at a press conference after attending the G20 Finance Ministers and Central Bank Governors Meeting on the 18th (local time) that if inflation rises significantly due to the weak yen, interest rates could be raised again.
[Image source=Reuters Yonhap News]

At a press conference following the G20 Finance Ministers meeting held in Washington DC, Governor Ueda said, "The rise in import prices caused by the weak yen could increase inflation," adding, "If the impact becomes too significant to ignore, it could lead to changes in monetary policy."

He also stated that they are closely examining how the yen's depreciation affects the economy and prices, and that the results of this investigation will be reflected in the policy meeting scheduled for two days starting on the 26th, where quarterly growth rates and inflation forecasts will be discussed.

Earlier, in an interview with Asahi Shimbun on the 5th, Governor Ueda had said that if it becomes certain that the inflation target of 2% will be achieved, interest rates could be raised.

Japan raised interest rates in March for the first time in 17 years, ending negative interest rates after 8 years and guiding short-term policy rates to 0?0.1%. However, with expectations for U.S. rate cuts fading, the yen's value fell to its lowest level in 34 years despite the rate hike. On the morning of the same day, the yen-dollar exchange rate hovered around 154.6 yen.

However, Japanese Finance Minister Shunichi Suzuki said at the same press conference that the yen's depreciation is not solely due to the interest rate gap between the U.S. and Japan. He explained, "Various factors such as each country's current account balance, market sentiment, and speculative trading drive exchange rate fluctuations," indicating that multiple factors are reflected.

Finance Minister Suzuki also announced a joint statement at the trilateral finance ministers' meeting of South Korea, the U.S., and Japan the previous day, acknowledging serious concerns about the sharp depreciation of the yen and the won.

The International Monetary Fund (IMF) is also supporting the possibility of a BOJ rate hike. Eri Nada, IMF’s Japan representative, said at the IMF Spring Meetings held in Washington DC that strong wage increases in Japan are expected to be reflected in consumption in the second half of this year, raising inflation expectations and potentially prompting the BOJ to implement the next rate hike.

He predicted that inflation will reach the BOJ’s 2% target this year and next year, which would open the door for interest rate increases.

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