BANK of Japan governor Kazuo Ueda said that Japan might need to raise interest rates again if the depreciation of the yen continues and leads to an increase in prices.
In a press briefing in Washington, B.O.J. Chief Kazuo Ueda said if the scale of impact that cannot be ignored arises, then, there could be a change in the monetary policy. Noting that the weak yen could raise trend inflation through increases in the prices of imported goods.
But according to Hideo Kumano, Chief Economist of the Economic Research Department at the Dai-Ichi Life Research Institute, if the bank of Japan raises interest rates in response to the currency depreciation, the Japanese government will face mounting pressure from interest payments as its debt is huge. Therefore, japan does not have much room for maneuver.
Kumano made the remarks in a CCTV interview this week.
‘’If Japan’s economic outlook worsens in the future and the Bank of Japan raises interest rates, debt interest payments will increase, which will cause problems at the political level. This will be a very critical issue,’’ Hideo Kumano Chief Economist, Dai-Ichi life research institute said.
Kumano remarked that a weaker yen is theoretically a boon for Japanese exporters, but, prices will rise for fuel and raw material imports, leading to an increase in their production costs.
This observation coincides with the data released on Wednesday by Japan’s ministry of finance show that the country logged a 5.89 trillion yen or 38 Billion dollar trade deficit for the third straight year in fiscal 2023.
Kumano said that such a sustained yen depreciation would hardly bring benefits to Japanese companies and the economy.
‘’In fact, few people think that such a depreciation of the yen will be beneficial to export companies. On the other hand, for consumers, if the yen depreciates, the prices of imported goods will rise. The prices of food and gasoline and other fuels, which have finally stabilized, will continue to rise. For consumers, yen depreciation has obvious disadvantages,’’ Kumano said.
Although the finance ministry of Japan is expected to intervene in the exchange rate, Kumano said there’s a great uncertainty on whether of aiming to narrow the interest rate gap between Japan and the United States can obtain external support from other countries, especially monetary policy support from Washington.
