© Reuters. FILE PHOTO: Japanese yen banknotes are seen in this illustration photo taken on September 23, 2022. REUTERS/Florence Low/Illustration/File photo
Written by Satoshi Sugiyama
TOKYO (Reuters) – More than half of economists polled by Reuters said Japan’s government and central bank would act to stop the yen’s decline if it fell to 145 against the US dollar.
Market participants are watching closely how the government and the Bank of Japan (BOJ) respond to moves in the currency, after their meeting last month when the yen approached a six-month low and before the central bank’s interest rate review on Friday.
While 96% of respondents expect the Bank of Japan to maintain policy this week, almost half see a reversal of easing, including an adjustment to the Yield Curve Control (YCC) scheme, in either July or September.
Fifteen of 28 economists (54%) said the government and the Bank of Japan would take steps such as issuing a warning or intervening in the currency market once the yen weakens more than 145 yen to the dollar, according to the poll conducted June 8-13. Another 12 said 150 yen was the trigger.
“Domestic firms’ tolerance of a weaker yen has improved thanks to strong tourism demand, but a sharp decline in the yen would hurt manufacturers because weak external demand made the benefit from a weaker yen barely visible,” said the president of S&P Global (NYSE: Market Intelligence). Economist Harumi Taguchi.
Analysts said policymakers may consider if the yen weakens rapidly, or if there are fears of currency depreciation to prolong domestic inflation and put pressure on household purchasing power.
In a separate question about the impact of a weaker yen on the Bank of Japan’s policy, nine economists (31%) said the central bank’s decisions could be affected by a depreciation of the yen beyond 145 yen to the dollar. Ten said 150 was the minimum, three chose 155 and two chose 160 or more.
The Bank of Japan, the Ministry of Finance and the Financial Services Agency had a three-way talk on May 30, similar to another conversation last year that served as a prelude to Japan’s first dollar-buy-yen intervention in 24 years in September.
The yen hit a 32-year low near 152 per dollar in October, but then reversed course, as the government implemented additional interventions and the Bank of Japan shook the market with a surprise YCC adjustment in December. The currency was trading at 140.885 per dollar at midday Thursday.
Stay on track now
Sources familiar with the bank’s thinking told Reuters that the Bank of Japan is expected to maintain ultra-loose monetary policy at its final two-day meeting starting Thursday.
In the survey, all but one economist — JPMorgan — endorsed the view, citing the bond market’s improved performance and Governor Kazuo Ueda’s dovish comments so far.
However, nearly two-thirds of respondents expect the Bank of Japan to reduce current policy this year, although the margin has narrowed from 71% in last month’s poll. The share of economists expecting a decline in July remained largely unchanged at around 43%.
said Hiroshi Watanabe, chief economist at the company Sony (NYSE: Financial Group), which expects the Bank of Japan to double the ceiling around its 10-year yield target to 1.0%.
Also, more than 70% of the economists surveyed said that wage growth in Japan in 2024 will likely remain at a level sufficient for the Bank of Japan to consider terminating or amending the YCC.
Cautious Japanese companies offered annual wage increases of more than 3% this year, the highest level in three decades, given the need to attract workers amid soaring inflation and a labor crisis. The Bank of Japan’s Ueda said ending easy policy would depend on the economy achieving 2% inflation combined with wage growth.
(For other stories from Reuters’ long-running global polling package of economic forecasts:)