Japanese consumption suffers as yen continues to weaken! Analysts: Bank of Japan faces greater pressure to raise interest rates

The Japanese yen against the U.S. dollar (USDJPY) exchange rate fell by more than 0.2% to 155.8 yen today (17th), giving up part of the gains earlier this week. It has fallen by about 10% so far this year. The continued weak performance of the Japanese yen has also caused Japanese prices to rise. The rise has impacted people\’s consumption. This situation is also reflected in the data released yesterday. Japan\’s economic contraction in the first quarter of this year was larger than expected, partly due to the weakness of the yen.

The Japanese yen against the U.S. dollar (USDJPY) exchange rate fell by more than 0.2% to 155.8 today (17). The yen gave up part of the gains earlier this week and has lost about 10% so far this year. The continued weak performance of the yen has also caused rising prices in Japan to impact people\’s livelihood. This situation of consumption is also reflected in the data released yesterday. Japan\’s economic contraction in the first quarter of this year was larger than expected. Part of the reason is the weakness of the yen.
Analysts pointed out that weak consumption in Japan may increase political pressure on the Bank of Japan (BOJ) to raise interest rates and slow down the depreciation of the yen. This pressure may prompt BOJ President Kazuo Ueda to continue to send hawkish signals on the policy outlook. However, at the same time, many people believe that doing so can Avoid the risk of a slower-than-expected recovery in consumption.
Analysts believe that weak economic data alone may not force the BOJ to review its plan to steadily raise interest rates last month as policymakers are more concerned about whether consumption will rebound later this year as expected.
Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said the BOJ is likely to stick to its view that rising wages will boost consumption but may have to wait until second-quarter GDP data for this year in August to confirm whether this is the case.
Although the BOJ has ruled out the possibility of using monetary policy to influence exchange rate trends, market concerns about the headwinds of a weaker yen are growing. Some government and business executives are still calling on the BOJ to accelerate interest rate increases.
Masakazu Tokura, chairman of the Japan Business Federation, said at a meeting of the government think tank \”Council of Economic and Fiscal Policy\” (CEFP) last Friday (10th) that the government\’s Supreme Economic Council stated that inflation must remain moderate in order for companies to earn enough money to continue raising wages.
CEFP private management member Mana Nakazora also urged the BOJ to help ease downward pressure on the yen through monetary policy.
The escalating pressure from the Japanese government has forced the BOJ to revise its dovish policy in April. The outside world has also accused the BOJ of triggering a further sharp decline in the yen. This led Kazuo Ueda to say after meeting with Japanese Prime Minister Fumio Kishida last Tuesday (7th) that the BOJ would The yen trend remains vigilant. One day later, it was said that the BOJ may raise interest rates if the yen\’s fall has a significant impact on prices.
A source close to Fumio Kishida’s government told Reuters that the current level of the yen has a great negative impact on people’s lives.
In theory it makes little sense to raise rates when the economy is weak, but that\’s not the case in Japan, where short-term interest rates are still hovering near zero even as inflation exceeds the Bank of Japan\’s 2% target for two years in a row.
Former BOJ official Maeda Eiji pointed out that the BOJ may not raise interest rates just to slow down the decline of the yen, but the impact of the yen\’s trend on prices may be greater than when Japan fell into deflation. Accordingly, the impact of a weak yen on inflation is very important in guiding monetary policy. Importantly, Maeda also predicts that the BOJ will raise interest rates as soon as July.

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