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Japan Will Keep Watching Impact of Strong Yen, Suzuki Says

Sheets of newly-designed Japanese 10,000 yen banknotes move through a machine at the National Printing Bureau Tokyo plant in Tokyo, Japan, on Wednesday, June 19, 2024. Persistent weakness in the yen is raising concerns about the potential for a resurgence in cost-push inflation, likely weighing on private consumption. Photographer: Kiyoshi Ota/Bloomberg (Kiyoshi Ota/Bloomberg)

(Bloomberg) -- The Japanese government will keep analyzing the sudden yen strength’s impact on the nation’s economy, the finance minister said after the yen gained sharply following major central bank decisions this week. 

“The government will continue to analyze the impact of exchange rate fluctuations on the Japanese economy and people’s lives, and will respond appropriately,” Finance Minister Shunichi Suzuki told reporters Friday. 

Suzuki said a stronger yen has both good and bad effects, although rapid currency fluctuations may increase uncertainty in business activities and negatively affect people’s lives. 

His remarks came after the yen rose following the Bank of Japan’s rate hike decision Wednesday, hitting 150 against the dollar for the first time since March. The central bank increased its policy rate to around 0.25% from a range of 0 to 0.1%, and also unveiled plans to halve its bond purchases by the first quarter of 2026. Later the same day, the Federal Reserve hinted at a rate cut as soon as September, pushing up the yen further. 

Suzuki also commented on the potential increase in debt servicing costs following the BOJ’s tightening step. The government must ensure it can fund necessary spending even if debt-related payments rise, and more efforts are needed to improve fiscal health, the finance minister said. 

The ministry projected in April that the nation’s interest payment expenses will increase by ¥8.7 trillion ($58.2 billion) in the year ending March 2034 compared with the current fiscal year, if long-term yields rise by 1 percentage point.

Given the BOJ plans to substantially cut its bond buying, the government also needs to implement a solid debt management policy going forward, Suzuki said. The central bank currently holds more than 50% of JGBs issued. “It’s necessary for banks and other financial institutions to acquire more government bonds,” he said. 

Read: MOF Is Said to Want BOJ to Mull Bank Capacity in Bond Plan (1)

Despite the changes afoot, the minister said that the government has comprehensively assessed that there is no need to review the joint statement with the BOJ for now. The government signed the accord with the BOJ in 2013, outlining the central bank’s commitment to its 2% price goal as part of a shared role with the government in stimulating the economy.

Suzuki also mentioned that he doesn’t believe the Japanese economy has completely escaped deflation, although the country is not currently in a state of deflation. The government can only declare a complete end to the deflation when it’s convinced that there is no possibility of a return to it, according to the minister.

“I don’t think that we have yet reached that stage, so we’re not making that declaration yet,” he said.

©2024 Bloomberg L.P.