Japanese government panel warns of weak yen consequences, calls for BOJ action

Private-sector advisers urge the Bank of Japan to counteract the yen’s depreciation to prevent accelerated inflation, emphasizing sustainable policy measures.

Private-sector advisers to the Japanese government have issued a cautionary note regarding the yen’s rapid depreciation, warning of potential economic repercussions stemming from accelerated inflation. The advisers emphasized the necessity for the Bank of Japan (BOJ) to take appropriate measures to mitigate excessive price surges.

Members of the prime minister’s top economic and fiscal policy advisory panel expressed concerns over the yen’s weakening, inflation outpacing wage growth, and sluggish private consumption, factors believed to pose challenges to Japan’s economy. Amid speculation of government and BOJ interventions to halt the yen’s decline, Prime Minister Fumio Kishida emphasized the government’s vigilant monitoring of the currency’s devaluation.

In a statement presented to the panel, the advisers highlighted the potential adverse impact of sharp yen depreciation and soaring commodity prices on inflation, emphasizing the importance of closely monitoring developments. They called upon the BOJ to guide monetary policy appropriately to achieve its 2 per cent inflation goal sustainably and stably, thereby safeguarding private-sector demand.

Chaired by the prime minister, the Council on Economic and Fiscal Policy aims to integrate private-sector perspectives into key policy agendas. Notable members include Sumitomo Chemical Co. Chairman Masakazu Tokura and Takeshi Niinami, who heads the Japan Association of Corporate Executives.

Amidst concerns over the yen’s plummet to a 34-year low against the U.S. dollar and its impact on corporate planning, business leaders, including Tokura, have voiced apprehension. BOJ Chief Kazuo Ueda has shifted his stance on the yen’s fall following discussions with Prime Minister Kishida, signalling a more vigilant approach to monitor its impact on inflation.

Addressing the panel, Kishida affirmed the government’s close coordination with the BOJ in monitoring the yen’s decline. The government has implemented measures to alleviate inflation pressures, including temporary tax cuts. However, sustaining wage growth remains a challenge, with real wages continuing to decline.

Private-sector advisers stressed the importance of enabling small and midsize companies to increase wages to mitigate rising costs. They also advocated for expedited efforts to achieve the government’s target of raising the average hourly minimum wage.