Prime Minister Shinzo Abe’s decision to stick with Bank of Japan Gov. Haruhiko Kuroda indicates that powerful stimulus will continue, and the yen’s recent advance could make policy normalization even more remote.
That’s the message from a survey of 26 economists following Abe’s nomination of Kuroda and new deputies Masayoshi Amamiya and Masazumi Wakatabe. Only three say the appointments will change the course of central bank policy. Many cited currency markets as a problem for the BOJ.
The yen touched 105.55 versus the dollar in Tokyo trading on Friday, the strongest level since November 2016. The move prompted the finance minster, chief cabinet secretary and the nation’s top currency official to all express concern about the foreign exchange market. Speaking in parliament last week, Kuroda said the central bank needs to persist with its monetary easing.
“The rapid appreciation of the yen increases the chance of a delay in raising the 10-year bond yield target,” said Atsushi Takeda, chief economist at Itochu Corp. “If the yen breaks through 100 to the dollar, additional easing becomes a possibility.”
Takatoshi Ito, a professor at Columbia University who was considered a contender for one of the top three spots at the BOJ, said on Monday that the central bank “must have thought” a growing spread between U.S. and Japanese interest rates would weaken the yen and help generate inflation.
“That is not happening,” Ito said, adding that the current pace of monetary easing would continue.