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Japan’s central bank will be ‘alarmed’ if yen crosses 130 per dollar, says ex-vice minister

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The Bank of Japan will be “alarmed” if the yen weakens beyond 130 per dollar, according to Japan’s former vice minister of finance for international affairs, Eisuke Sakakibara.

The yen was trading at 123.77 per U.S. dollar on Wednesday morning Asia.

The Japanese currency fell more than 5% against the greenback in March, despite the yen being seen traditionally as a safe-haven currency. Still, the yen took a hard hit as geopolitical turmoil, such as the Russia-Ukraine war, roiled global markets.

The yen’s weakening comes amid expectations the Bank of Japan would be slower than other central banks in tightening monetary policy.

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While its global peers such as the U.S. Federal Reserve have started raising interest rates and are expected to make more aggressive moves to tame inflation, the Japanese central bank has continued its massive stimulus.

The yen’s current levels against the greenback won’t be a problem, said Sakakibara, previously referred to as “Mr. Yen” when he led multiple currency interventions during the 1990s. He pointed out that the dollar-yen traded between 120 and 125 about four or five years ago.

A Japanese national flag flies outside the Bank of Japan headquarters in Tokyo, Japan, on Sept. 27, 2021. The Japanese central bank has for years adopted ultra-easy monetary policy in a bid to achieve its ever elusive inflation target.
Toru Hanai | Bloomberg | Getty Images

“This yen depreciation is a reflection of the dollar appreciation vis-a-vis yen and market expect that depreciation of the yen would probably continue and some people expect that dollar-yen rate toward 130,” said Sakakibara, currently president at Institute for Indian Economic Studies.

“If it goes to 130 — and beyond 130 — that may create some problems,” he told CNBC’s “Asia Squawk Box” on Tuesday. The Bank of Japan “will be alarmed” if the dollar-yen rate goes beyond 130, he added.

Japan’s inflation target

Bank of Japan Governor Haruhiko Kuroda said Tuesday the Japanese currency’s recent moves were “somewhat rapid” but reiterated that a weak yen helps Japan’s economy as a whole, Reuters reported.

Under Kuroda’s leadership, the Japanese central bank has for years adopted an ultra-easy monetary policy in an attempt to achieve its ever elusive inflation target.

“I don’t see the Bank of Japan being particularly upset about it if you keep the inflation goal front and center,” said Manpreet Gill, head of fixed income, currencies and commodities strategy at Standard Chartered Private Bank.

The current situation actually helps the Japanese central bank in achieving inflation, he said, though that may not last as the recent weakness in the yen was driven by dollar strength, and several rate hikes by the Fed have already been factored into the price.

Meanwhile, NatWest Markets’ Galvin Chia said the Bank of Japan is currently in a “difficult situation.”

“The markets have really hopped onto this idea, you know, like we saw over the last two weeks, that the yen should be depreciating,” said Chia, an emerging markets strategist.

“My own personal view is that the BOJ is rightly more concerned about the pace of [the yen’s] depreciation … and sort of the volatility that may create around financial markets as opposed to the level,” he said.

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