Yen Stability Hinges on BOJ Policy, Says US Treasury Secretary

US Treasury Secretary: Yen Stability Dependent on BOJ Policy

US Treasury Secretary Bicent stated that if the Bank of Japan (BOJ) continues to implement the correct monetary policy, the Yen will automatically stabilize at an appropriate level, according to Japanese media citing collective interviews. Bicent declined to comment on specific Yen levels, according to reports from Kyodo News and Nikkei. The Yen has experienced a notable decline this month, hitting an eight-month low of 153.27 against the dollar on October 10. A key factor in this decline was the diminished speculation of an imminent interest rate hike by the BOJ. However, the dollar-yen exchange rate saw a rebound ahead of the European market opening on Thursday, nearing the 151 level again.

Support from Japanese Finance Minister

Comments from Japanese Finance Minister Katsunobu Kato, who is responsible for monetary policy including intervention, also supported the Yen. Kato indicated in Washington that he is seeing rapid movements in the Yen towards weakness. According to Nikkei, Bicent declined to comment on the BOJ's next monetary policy decision on October 30 but noted that BOJ Governor Kazuo Ueda is highly capable.

Softening US Tone

Bicent's recent remarks about the BOJ are considered more moderate than his statements in August, when he mentioned that the Japanese central bank was slow in addressing inflation. These remarks serve as a reminder of Washington's stance towards the Japanese currency, as former US President Donald Trump occasionally accused Japan of weakening its currency to enhance its trade competitive advantage.

Divergent Views Within BOJ

Takeshi Naoki, a hawkish member of the BOJ committee, stated on Thursday that inflation trends in Japan are likely to achieve the target sooner than the bank currently anticipates. Takeshi had called for an interest rate hike at the September meeting.

Uncertainty Surrounds BOJ Policy

Despite this, political instability in Japan is considered a primary reason why economists expect the BOJ to reduce the likelihood of tightening monetary policy this month. As of Thursday, traders believe there is a 15% chance of an interest rate hike this month, compared to about 70% at the end of last month.

Impact of Political Shifts

Sana Tachi, who unexpectedly won the ruling Liberal Democratic Party's presidential election earlier this month, appears more likely to secure the necessary votes in parliament to become the next prime minister. After the Komeito Party withdrew from the ruling coalition last week, Tachi intensified efforts to secure support from another opposition party. Parliament is expected to elect a new prime minister next week.

Expectations of Interest Rate Hike

Kazuo Munima, a former executive director of the BOJ, stated that if the Yen's exchange rate against the dollar falls to 155 or lower, the BOJ is likely to raise interest rates at its next meeting. He added that the new government may accept such a move to avoid bearing additional inflationary pressure amid ongoing public discontent over rising living costs.

Inflation and Real Wages

Inflation in Japan has remained at or above 2% for over three years, while real wages have declined during most of this period. In an interview in August, Bicent stated that the BOJ would raise interest rates in the future because it needs to control its inflation problem.