Yen Hits New 20-Year Low After Bank of Japan Reinforces Low-Rate Policy

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Central bank sees inflation of 1.9% in Japan this fiscal year, near its target, but worries about economic weakness

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On Thursday afternoon in Tokyo, the dollar was changing hands at more than 130 yen, compared with 115 yen as recently as early March. That means the yen has lost more than 10% of its value in less than two months as investors look to move their money to currencies such as the dollar that offer higher yields.

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Before the central bank’s announcement sent the yen to a 20-year low, it was trading at about 128.70 to the dollar.

The Japanese central bank is coping with rising prices, a weak yen and a sluggish economy all at once. That contrasts with the Federal Reserve, which is expected to fight inflation in a textbook style with a series of rate increases this year. The Fed raised its benchmark federal-funds rate by a quarter percentage point in March, and signaled it would follow up with a half-percentage point move in May. In the US, inflation hit 8.5% in March.

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In the BOJ’s quarterly outlook released Thursday, the policy board projected core inflation excluding fresh food would reach 1.9% in the year ending March 2023, close to the BOJ’s 2% target and up from its previous projection of 1.1%.

Convenience stores, the Tokyo subway, a beer company and many other businesses have raised prices recently or said they plan to do so. BOJ Gov. Haruhiko Kuroda has described this as cost-push inflation, meaning it is caused mainly by higher costs of energy and raw materials rather than robust consumer demand.

Because this type of inflation can reduce households’ real income after adjustment for price increases, hurt corporate profits and ultimately limit the economy’s growth, the central bank needs to keep interest rates low, Mr. Kuroda has said.

On Thursday, the BOJ maintained its target for short-term interest rates at minus 0.1%. It kept its target for the 10-year Japanese government bond yield at about zero.

The bank said it expected short- and long-term interest rates to stay at the current or lower level. In its economic outlook, the bank said it expected inflation to slow down to 1.1% in the year ending March 2024 as well as the following year.

The bank forecast the Japanese economy would expand 2.9% in the current fiscal year ending March 2023, down from 3.8% growth projected in the previous report. It said it expected 1.9% growth in the year ending March 2024 and 1.1% growth in the following year.

For now, the government is taking the lead in easing the burden of rising prices. Prime Minister Fumio Kishida on Tuesday released a package of emergency measures totaling 6.2 trillion, equivalent to $48.3 billion. The measures include gasoline subsidies and a cash handout to low-income households equivalent to $389 for each child.

Write to Megumi Fujikawa at [email protected]


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