BoJ Governor Says Phasing Out of Ultra-Dovish Stance Possible, Yen Rallies

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Bank of Japan (BoJ) Governor Haruhiko Kuroda noted in the early hours of Thursday at a parliament session that his financial institution could implement a smooth phasing-out of its ultra-dovish monetary policy, albeit a tasking undertaking.

However, Kuroda asserted that the central bank had to maintain its loose monetary stance for now, with consumer inflation projected to slow down next year and in subsequent years after a bump near its 2% target due to surging energy costs.

That said, when the time comes, the BoJ board will announce its transition from its loose policy. Kuroda noted:

“The key would be how to raise interest rates and scale back the BOJ’s expanded balance sheet.”

He added:

“The BOJ can combine various means and ensure markets remain stable in executing a smooth exit from easy policy. I must add, however, that it won’t be easy.”

Japanese Yen Regains Dominance Over USD Following BoJ Governor Speech

The Japanese yen recorded a sharp rally against the dollar on Thursday, effectively erasing all the losses accrued yesterday. The yen is now on track to record its third-consecutive bullish week against the dollar. The last time such a feat was recorded was in April 2021.

The USD/JPY pair tapped the 126.55 level in the late Asian session today, with the pair trading down by 0.53%.

Meanwhile, Kuroda further noted that rate hikes by the US Federal Reserve might not weaken the yen against the dollar any further if it also drags US share prices lower.

Speaking at the parliament session, Japan’s Prime Minister Fumio Kishida noted that it was hard to ascertain whether the yen’s weakness would abate in the short term or long term. The PM noted:

“Sharp yen moves are undesirable. While a weak yen benefits exports and firms with overseas assets, it hurts households and some businesses via higher costs.”