by Satoshi Sugiyama
TOKYO (Reuters) – Japan’s government and the country’s central bank will intervene to stem the yen’s depreciation if it falls to 145 to the dollar, more than half of economists polled by Reuters said.
Since last month’s Japanese authorities’ meeting, following a further drop in the yen to near a six-month low, market participants have been closely watching the reactions of Tokyo and the Bank of Japan (BoJ ) on foreign exchange while the issuing institution must issue its monetary policy decision on Friday.
The Reuters survey of economists, conducted from June 8 to 13, shows that 96% of them expect the BoJ to leave its ultra-accommodative monetary policy unchanged on Friday. On the other hand, around half of those surveyed foresee an adjustment of the latter in July or September, in particular a modification of the yield curve control policy (YCC).
Fifteen out of 28 economists, or 54%, said the government and the BoJ would take action, including a warning or even direct intervention in the foreign exchange market, if the yen depreciates against the dollar beyond 145. Twelve economists see this threshold at 150 dollars for one yen.
“Domestic businesses’ tolerance of weak yen has improved on the back of strong tourism demand, but a sharp decline in the yen would hurt the manufacturing sector as weak demand from overseas took away the benefit of depreciation of the yen,” said Harumi Taguchi, economist at S&P Global Market Intelligence.
Analysts said BoJ officials could intervene if the yen weakens rapidly or if there are fears that its depreciation will fuel inflation and erode household purchasing power.
Responding to a separate question on the impact of yen weakness on BoJ policy, nine economists (31%) said central bank decisions could be influenced by a depreciation of the yen beyond 145 for a dollar. Ten said 150 was the trigger point, three opted for 155 and two rated it at 160 or more.
The BoJ, the Ministry of Finance and the Financial Services Agency (FSA) held a tripartite meeting on May 30, similar to that of last year, which then led to action in the foreign exchange market in September consisting of to sell dollars and buy yen, the first intervention of this type by the authorities of the archipelago in 24 years.
The yen hit a 32-year low in October, near 152 to the dollar, before recovering as the government made further interventions and the BoJ surprised the market with a December change in the YCC. On Thursday, the Japanese currency was trading at 141.25 yen per dollar.
STAY THE COURSE FOR NOW
Of the 28 economists polled by Reuters, 27 said the BoJ, meeting since Thursday, should maintain its very accommodative monetary policy, confirming information reported by sources close to the central bank.
Nearly two-thirds of respondents nevertheless predicted that the BoJ would revise its monetary policy this year. In last month’s survey 71% believed such a change would take place. The proportion of economists (about 43%) predicting a change in July was broadly unchanged.
“July could be the best time to change the YCC, coinciding with the release of the BoJ’s quarterly inflation forecast and ahead of a likely US recession anticipated this year,” said Sony Financial Group economist Hiroshi Watanabe.
He said he expected the fluctuation cap for Japanese 10-year bond yields, currently set at 0.5%, to be raised to 1.0%.
Separately, more than 70% of economists surveyed said wage growth in Japan in 2024 is likely to remain at a sufficient level for the BoJ to consider ending the YCC or modifying it.
Companies in Japan, anxious to retain or attract new talent, in a context of labor shortages, have proposed wage increases this year of more than 3%, a level not seen in 30 years.
BoJ Governor Kazuo Ueda, who last week said he was seeing changes in corporate behavior, stressed that an end to the bank’s ultra-accommodative policy would depend on the economy’s ability to achieve a sustained recovery. 2% inflation combined with wage growth.
(Reporting Satoshi Sugiyama; with KantaroKomiya; investigations by Veronica Khongwir and Anant Chandak; Claude Chendjou, editing by Kate Entringer)
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