Japan Finance Minister to Closely Watch Impact of Yen Moves on Corporate, Household Activity — Update

By Megumi Fujikawa

TOKYO--Japan's new finance minister pledged to consider policy responses against sharp currency moves based on how they affect the real economy, a comment that comes as growing global economic uncertainties spur volatility in foreign-exchange markets.

"We need to take necessary measures while closely watching the effects [of currency moves] on people's lives and economic activities, rather than responding to the foreign-exchange market itself," Katsunobu Kato said in an interview with Dow Jones Newswires and other media on Monday.

He acknowledged that there are both positive and negative effects from a strong or weak yen. While the yen's weakness has increased the cost of Japan's imports such as food and energy, it has also boosted exporters' profits earned abroad.

The yen has swung wildly against the dollar in the past months due to speculation over the course of monetary policies in the U.S. and Japan, plus uncertainties over the global economic outlook.

The dollar reached around 162 yen in early July and was last trading at 148.40 yen on Monday. The Japanese currency softened again in recent sessions due to dimmed expectations for an imminent interest-rate increase by the Bank of Japan and speculation over the pace of Federal Reserve easing.

The finance minister said in the interview that he expects the BOJ to have the monetary policy appropriate for achieving stable 2% inflation and carefully communicate its policy intentions to the market. It is up to the BOJ to decide specific measures, he added.

Tokyo shares fell sharply last week in the wake of Shigeru Ishiba's election as leader of Japan's ruling party amid concerns that he may prefer tighter fiscal and monetary policy. The new prime minister has since toned down his hawkish remarks in what analysts say is political positioning ahead of a snap election that is planned for Oct. 27.

Finance Minister Kato refrained from giving a specific view on the possibility of tax increases in Monday's interview, saying that he expects appropriate discussions to take place that align with the Ishiba administration's objectives.

Ishiba has said he will generally follow the economic policies of his predecessor, Fumio Kishida, aiming to achieve a complete exit from deflation and encouraging households and companies to shift money from savings into investments.

After formally taking office last week, Ishiba said Japan wasn't ready for an additional interest-rate increase yet.

Though data shows that inflation has been on the rise, officials have yet to declare the end of deflation, and Ishiba has stressed the need to make sure Japan doesn't reverse the so-called virtuous cycle, referring to the harmonious growth of wages and prices.

He also instructed his ministers to compile a fresh economic stimulus package, including measures to ease the burden of rising prices.

Though details have yet to be announced, the measures will likely involve steps such as target cost-of-living relief for households.

The Bank of Japan raised its policy rate to 0.25% in July after ending the world's last negative interest-rate policy in March.

BOJ Gov. Kazuo Ueda has said the bank will seek more rate increases if the economy improves in line with projections, but he has recently voiced concerns about uncertainties over the U.S. and other overseas economies.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

October 07, 2024 01:29 ET (05:29 GMT)

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