The Bank of Japan’s operations to buy unlimited amounts of 10-year Japanese government bonds to stem a rise in long-term interest rates do not have a “large, direct” impact on currency moves, Governor Haruhiko Kuroda said Wednesday.
Speaking to reporters after meeting with Prime Minister Fumio Kishida, Kuroda said currency moves should be stable and reflect economic fundamentals, after the Japanese yen tumbled earlier this week to an over six-year low.
The yen’s recent “slight” fall against the dollar comes as demand from Japanese importers for U.S. dollars remains strong following surging energy prices, and the U.S. Federal Reserve has clarified its stance on raising interest rates, the BOJ chief said.
“I don’t think our market operations have a large, direct impact on currency movements,” Kuroda said at the prime minister’s office.
“I told the prime minister that it is desirable for foreign exchange rates to move in a stable manner and reflect economic fundamentals,” he said, adding that he discussed the impact of Russia’s invasion of Ukraine on the global economy.
After the Kuroda-Kishida meeting was reported by the media, the dollar fell quickly below the 121.50 yen line. The dollar, which broke past the 125 yen line earlier this week, was trading in the upper 121 yen zone in the afternoon.
Following the meeting, Chief Cabinet Secretary Hirokazu Matsuno said it is important for the government to have close communication with the BOJ.
“Stability in the currency market is important and rapid movements are undesirable,” Matsuno said at a press briefing. “We will closely watch developments in the currency market, particularly the yen’s recent depreciation, and their impact on the economy.”
The BOJ has been battling to stop any further rise in 10-year Japanese government bond yields by announcing unlimited bond-buying at a fixed rate of 0.25 percent for this week. The BOJ’s offer drew no bids on Wednesday.
The yield on the benchmark 10-year Japanese government bond was at 0.230 percent Wednesday morning, shy of the 0.25 percent implicit upper limit set by the BOJ as part of its yield curve control program designed to keep borrowing costs low for households and companies.
The BOJ’s attempt to keep the benchmark yield below the upper limit, however, helps the yen weaken when U.S. Treasury yields are on an uptrend.
A weak yen cuts both ways as it boosts Japanese exporters’ overseas profits when brought back home but inflates the costs of imported energy, food and other items — a headache for resource-scarce Japan.
The diverging policy paths of the BOJ, which is expected to maintain its ultra-easy monetary policy for an extended period, and the more hawkish Fed have sharply weakened the yen against the dollar.
Kuroda, who once served as Japan’s top currency diplomat, has said a weak yen is positive for the economy and that commodity inflation will not prompt the BOJ to change its monetary policy.
The BOJ is seen as an outlier as other major central banks like the Fed and the European Central Bank are scrambling to tame inflation.