Written by Laika Kihara
TOKYO (Reuters) – Bank of Japan Governor Kazuo Ueda said on Wednesday that the central bank may take action on monetary policy if the yen's movements have a significant impact on inflation, stepping up its warning about the economic fallout from the currency's recent sharp declines.
Ueda said a weak yen affects the economy in various ways, including by raising import costs and affecting demand for goods and services.
Ueda said that while the Bank of Japan would not seek to directly control the yen's movements through monetary policy, it would examine the potentially significant impact it could have on the economy and prices.
“The behavior of companies in setting wages and prices has become somewhat more active. As such, we have to keep in mind the risk that the impact of currency fluctuations on inflation is greater than in the past,” Ueda said.
“Exchange rate movements can have a significant impact on the economy and prices, so there is a chance that we may need to respond with monetary policy,” Ueda told parliament.
These comments are compared to those Ueda made after the Bank of Japan's monetary policy meeting last month, when he said the yen's recent declines had no immediate impact on the inflation trend.
Ueda's comments after the meeting were cited by some traders as accelerating the yen's declines by increasing market expectations that the Bank of Japan will delay raising interest rates from current levels around zero for some time.
