Kuroda Warns Current Yen Strength Risks Harming Recovery

  • `Closely monitoring' impact of markets on the economy: Kuroda
  • Yen's 13% surge versus dollar in 2016 is most among G-10 peers

Does Yen Strength Risk Harming Japan's Recovery?

Bank of Japan Governor Haruhiko Kuroda warned that the yen’s biggest rally since Abenomics began risks harming the nation’s economic recovery.

Speaking to reporters in Frankfurt Monday, Kuroda also reiterated that BOJ policy makers won’t hesitate to expand monetary stimulus in order to achieve their 2 percent inflation target. Japanese Prime Minister Shinzo Abe said the same day in Paris that rapid movements in exchange rates are undesirable, according to national broadcaster NHK.

“There is a risk that the yen’s current appreciation brings an unwelcome impact on the economy,” Kuroda said on the sidelines of an annual gathering of finance chiefs from members of the Asian Development Bank, which he used to lead. “We will be closely monitoring the impact of financial markets on the real economy and prices.”

A weaker currency has been a linchpin of Abe’s program to stoke growth and exit deflation. Japan’s economy is at risk of sliding into its second recession in two years after contracting in the final three months of 2015, while inflation remains far from the BOJ’s target. One gauge showed consumer prices retreated at an annual 0.3 percent pace in March, the biggest decline since April 2013, the month that Kuroda initiated his stimulus program.

Yen Jump

The yen has climbed 13 percent against the dollar this year, the best performance among its developed-market peers. That has chipped away at the 36 percent decline over the previous four years, which was triggered by Abe’s pledge of unlimited monetary easy to correct yen strength.

Kuroda and his board left policy settings unchanged at a meeting Thursday, spurring a nearly 5 percent, two-day surge in the yen against the dollar. It reached an 18-month high of 106.05 per greenback on Tuesday, before trading at 106.19 as of 9:54 a.m. in Singapore.

Japanese markets are closed for holidays Tuesday, Wednesday and Thursday this week.

Fiscal Stance

Abe said stability in exchange rates is important and rapid moves are undesirable, adding that Group-of-Seven nations should send a strong message that they won’t rule out flexible fiscal action to ensure sustainable growth in the world economy, according to NHK. He spoke during a meeting with French President Francois Hollande. Japan hosts a G-7 summit on May 26-27.

Abe also said during his Europe visit that he would decide whether to go ahead with a sales-tax increase scheduled for April 2017 after discussions with G-7 leaders at the summit, the Nikkei newspaper reported. A previous bump in the levy in April 2014 sent the economy into a recession.

“For the G-7 to lead strong, sustained growth in the global economy, it must employ such tools as monetary and fiscal policy and structural reforms,” the Nikkei quoted Abe as saying. “I want to discuss what kind of message we as the G-7 should send.”

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