Bank of Japan Governor Haruhiko Kuroda on Monday reiterated his unwavering commitment to maintaining ultralow rates to support the fragile economy, even as the finance minister warned again of "decisive" action to stem volatile yen movements.
Kuroda's comments at a parliamentary session came after the yen plunged to its lowest level in 32 years versus the U.S. dollar, reflecting the widening monetary policy gap between Japan and the United States. U.S. President Joe Biden has said he is "not concerned" about the strength of the dollar.
The seemingly mixed messages by Japanese authorities show the difficulties faced by Japan.
The BOJ, on the one hand, takes the view that the current round of cost-push inflation, --a phenomena largely caused by higher import costs for energy, raw materials and food-- is not sustainable, and monetary easing is necessary to ensure its 2 percent target is achieved stably accompanied by wage increases.
But the weaker yen, a byproduct of the BOJ's dovish stance, has inflated import costs to the detriment of the Japanese economy. The government is preparing a comprehensive economic package, which will include inflation-relief steps.
"Japan's economy is in the midst of recovery from COVID-19. Higher commodity prices, on the back of the situation in Ukraine, have been leading to an outflow of income from Japan to overseas, adding downward pressure on the economy," Kuroda told a session of the lower house Budget Committee.
"For now, we think it appropriate to continue with monetary easing because it's necessary to support the economy and achieve our inflation target in a sustainable and stable fashion accompanied by wage growth," Kuroda said.
The yen was trading near 149 to the dollar on Monday. It was far from 145.90, the level at which Japan intervened in the market in September via its first yen-buying, dollar-selling operation since 1998.
Despite persisting caution about another round of intervention, the yen has continued to slide against the dollar in recent days.
"If we see excessive volatility caused by speculative moves, we will take decisive action. There is no change in this view at all," Finance Minister Shunichi Suzuki told reporters.
Japan's core consumer inflation hit 2.8 percent in August and Kuroda said it will likely rise further toward year-end, partly due to the weaker yen. But the headline inflation figure will undershoot the BOJ's 2 percent target in the next fiscal year, he added.
The U.S. Federal Reserve, for its part, has entered a rate-hike cycle to curb inflation and now faces the difficult task of striking the right balance in addressing recession fears in the markets.
Economists expect Japan's core consumer inflation to briefly top 3 percent as early as September. Based on the BOJ's projections, however, Kuroda will likely see his term as governor end next April without achieving the central bank's target of sustained inflation of 2 percent.
Asked about how he will pick a successor to Kuroda, Prime Minister Fumio Kishida stressed the importance of ensuring "predictability" in monetary policy and coordination between the government and the BOJ.
"We must choose a person who will be the most appropriate as of April next year, because there will be various economic and financial developments from now," Kishida told the session of the lower house committee.
Kishida has thrown his support behind the BOJ's efforts to persist with monetary easing. Retaining that stance, Kishida said Monday he expects the BOJ's efforts to continue toward meeting the inflation target, by taking into account economic and financial developments.
Kuroda was handpicked by the late former Prime Minister Shinzo Abe, who pushed for his "Abenomics" economy-booster program that entailed bold monetary easing by the BOJ.
Kuroda has ruled out a near-term interest rate hike and said monetary policy is not designed to control foreign exchange rates, amid growing calls for the BOJ to address the rapid depreciation of the yen.
Deputy Governor Masayoshi Amamiya and Hiroshi Nakaso, who previously served as deputy governor, have been seen among the candidates tipped to become the next governor.
Related coverage:
BOJ chief stays course on ultralow rate policy despite sharp yen drop
Yen falls to 32-yr low near 149 level vs. U.S. dollar
