LONDON – Jens Weidmann, president of Germany’s central bank, has expressed concern about additional monetary easing steps taken by the Bank of Japan, citing it as an example of the government meddling in the central bank’s business.
In a Monday speech posted on the Deutsche Bundesbank’s website, Weidmann cited Japan and Hungary as examples “where the new government intervenes heavily in the business of the central bank, calls for a more aggressive monetary policy and threatens the autonomy of the central bank.”
In the currency market, the yen has been losing ground against the euro since late last year, as it became apparent that the government would be led by Shinzo Abe, who champions a bold monetary policy to weaken the currency as a way to boost the economy.
On Tuesday, the BOJ, under pressure from Abe, now prime minister, issued a joint statement with the government and said it has decided to implement drastic easing steps to overcome chronic deflation and the strong yen.
With Germany competing against Japan in the auto and other markets, the Bundesbank president’s remarks may be intended, in part, to discourage action by Japan to weaken its currency, which helps boost the nation’s competitiveness as an exporter.
Weidmann said monetary authorities of various countries have weathered crises without falling into a war to weaken currencies and he hopes it will remain so.
Yen to move little in 2013
The yen probably won’t gain more than another percentage point or two versus the dollar before reversing course as the Bank of Japan moves closer to open-ended asset purchases, according to Citigroup Inc.’s Greg Anderson.
The Japanese currency rose the most in eight months Tuesday after the central bank said it will conduct open-ended asset purchases starting next January, disappointing investors who expected bolder action sooner. The BOJ also doubled its inflation target to 2 percent. Prime Minister Shinzo Abe, who took office last month, is pushing to boost the economy and has called for “bold monetary policy” to defeat deflation and drive the yen lower.
“The Abe administration painted the Bank of Japan in a box with the 2 percent inflation target,” Anderson, head of Group 10 currency strategy at Citigroup in New York, said on Bloomberg Television’s “Lunch Money” in an interview. “The BOJ’s way of resisting was pushing asset purchases off until 2014.”
The yen has lost 12 percent against the greenback over the past six months. It gained 1 percent to 88.74 per dollar in New York today and rallied as much as 1.4 percent, the most since May 17.
While the yen may strengthen to 87 per dollar over the next two weeks, it will weaken to the mid-90s versus the dollar by year’s end, Anderson said.
“Once they (actually) begin expanding balance sheet, you will see the yen weaken further,” he said.
The bank said Tuesday it will buy ¥13 trillion in assets a month starting next year.
BOJ Gov. Masaaki Shirakawa is scheduled to conclude a five-year term in April, and the terms of his two deputies end in March, giving Abe’s government a chance to chance to reshape the central bank.