By Leika Kihara
TOKYO, March 30 (Reuters) – The Bank of Japan will closely watch yen moves as they affect the economy and prices, Governor Kazuo Ueda said on Monday, suggesting that rising import costs from a weak currency could justify raising interest rates in the coming months.
The remark came as the yen slid past 160 against the dollar to its weakest point since July 2024, triggering threats of intervention by Japan’s top currency diplomat on Monday.
“We don’t guide monetary policy directly to control foreign exchange rate moves,” Ueda told Parliament. “But currency market moves are obviously among factors that hugely affect economic and price developments.”
Yen fluctuation has a greater impact on inflation now than it did in the past as companies become more active in raising prices and wages, Ueda said.
“We will guide policy appropriately by scrutinising how currency moves could affect the likelihood of achieving our growth and price forecasts, as well as risks,” he said, when asked by a lawmaker whether the BOJ could raise rates to combat yen weakening, which pushes up import costs.
The BOJ held its short-term rate steady at 0.75% in March but maintained its bias for tighter monetary policy, warning that surging oil prices driven by the Middle East conflict could exacerbate inflationary pressures.
Market concerns that the BOJ could fall behind the curve in addressing the risk of too-high inflation pushed up Japanese government bond yields last week.
Ueda said long-term interest rates would move in a stable manner if the BOJ raises its short-term policy rate at an “appropriate pace.”
“If our short-term policy rate is not adjusted appropriately and leads to an overshoot in inflation, there is a risk long-term yields could overshoot,” he said, signaling the BOJ’s resolve to steadily raise its policy rate.
(Reporting by Leika Kihara; Editing by Christopher Cushing and Thomas Derpinghaus)
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