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☆ As Kuroda bows out, Bank of Japan's rising hawks eye end to unloved yield cap
▼ + stars: | 2022-12-16 | by ( Leika Kihara | ) www.reuters.com time to read: +12 min

PUBLIC DISCONTENTAfter a tumultuous year for the world's third-largest economy, Japan's central bank and its leadership face a critical moment. While ruling out the need to ditch the yield cap now, Takata recently said he saw positive developments in wage growth. "The BOJ must start worrying about the possibility of inflation accelerating more than expected," he told Reuters, adding the BOJ may abandon its yield cap as early as next year. Such a reaction was seen in March when the BOJ was forced to pledge unlimited bond buying to defend its yield cap from speculative market attacks. "That's why the BOJ won't provide advance signals and remove the yield cap in a single step."

TOKYO, Dec 2 (Reuters) - Japan is set to earmark 40 trillion to 45 trillion yen ($295 billion-$333 billion) for defence spending over five years starting in the next fiscal year, which begins in April, three sources with knowledge of the matter told Reuters on Friday. That would be a jump from the current five-year defence plan for spending 27.5 trillion yen, stoking worry about worsening one of the industrial world's worst debt burdens, which amounts to twice the size of Japan's annual economic output. Prime Minister Fumio Kishida told key ministers on Monday to work on a plan to lift defence spending to an amount equivalent to 2% of gross domestic product within five years, from 1% now, as Japan faces an increasingly assertive China. The key ministers - Finance Minister Shunichi Suzuki and Defence Minister Yasukazu Hamada - are expected to meet again with Kishida this month to iron out differences over the spending plan. Defence authorities had informally floated an idea of spending in the upper range of 40 trillion yen over five years, while finance bureaucrats had sought spending along the lines of the current five-year plan.

Banknotes of Japanese yen are seen in this illustration picture taken September 22, 2022. REUTERS/Florence Lo/Illustration/File PhotoSummary Yen volatile as Tokyo suspected of intervention for 2nd dayYen plunged to 32-year low vs dollar near 152 yen FridayFX officials remains tight lipped on interventionTOKYO, Oct 24 (Reuters) - The Japanese yen was whipsawed in early Monday trading on suspected intervention by Tokyo for the second straight day, but the efforts to slow the currency's relentless slide was blunted by a dollar riding a wave of yield-driven and safe-haven demand. Japanese authorities again declined to confirm whether they had intervened, but the price action strongly suggested they had. read moreEarly on Monday, the Japanese currency made a thumping 4 yen jump to 145.28 per dollar, indicating currency authorities had stepped in for a second successive day, after a similar move by Tokyo on Friday. If the United States shows signs of its rate hikes peaking out and even cutting interest rates, the yen would stop weakening even without intervention."

Register now for FREE unlimited access to Reuters.com RegisterAfter the dollar rose to 151.94 yen , its highest since 1990, the intervention drove the greenback down more than 7 yen to a low of 144.50 yen. The Ministry of Finance (MOF) intervened in several stages from around 9:35 p.m. (1235 GMT), one source said. Japan's top currency diplomat, Masato Kanda, also declined to say whether the MOF had intervened. Many market players doubt whether Tokyo can reverse the yen's downtrend with solo intervention, even with Japan's $1.33 trillion in foreign reserves. Japan bought a record 3.6 trillion yen ($24 billion) in the September action, Tokyo money market brokerage firms estimated.

Coins and banknotes of Japanese yen are seen in this illustration picture taken June 16, 2022. That contrasts with Japan's intervention after the 2011 earthquake and tsunami to quell sharp yen rises, in which authorities announced most interventions. "With stealth intervention, authorities can give markets the impression they could be stepping in more frequently than they actually have," said Atsushi Takeda, chief economist at Itochu Research Institute. That means Tokyo will need to rely more on its words - or its silence - rather than reserves to shore up the yen. You could say stealth intervention may be better than nothing, though it's really just buying time."

Banknotes of Japanese yen are seen in this illustration picture taken September 22, 2022. On Sept. 22 they stepped in to prop up the yen for the first time since 1998. "I won't comment," Finance Minister Shunichi Suzuki told reporters at the finance ministry, when asked about intervention. "We absolutely cannot tolerate excessive moves in the foreign exchange market based on speculation," Suzuki told reporters at the finance ministry. Masato Kanda, vice finance minister for international affairs, also declined to comment on intervention.

After the dollar rose to 151.94 yen , its highest since 1990, the intervention drove the Japanese currency down more than 7 yen to a low of 144.50 yen. Register now for FREE unlimited access to Reuters.com RegisterThe Ministry of Finance (MOF) intervened in several stages from around 9:35 p.m. (1235 GMT), one source said. Speaking to reporters shortly after the yen spiked, Japan's top currency diplomat, Masato Kanda, declined to comment on whether the MOF had intervened, according to Jiji news agency. Many market players doubt whether Tokyo can reverse the yen's downtrend with solo intervention, even with Japan's $1.33 trillion in foreign reserves. Japan bought a record 3.6 trillion yen ($24 billion) in the September action, Tokyo money market brokerage firms estimated.

The inflation data highlights the dilemma the Bank of Japan faces as it tries to underpin a weak economy by maintaining ultra-low interest rates, which in turn are fuelling an unwelcome slide in the yen that pushes up import costs. The increase in the nationwide core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, matched a median market forecast and followed a 2.8% rise in August. "The current price rises are driven mostly by rising import costs rather than strong demand. The data heightens the chance the BOJ will revise up its consumer inflation forecasts in new quarterly forecasts due at next week's policy meeting, analysts say. With Japan's inflation still modest compared with price rises seen in other major economies, the BOJ has pledged to keep interest rates super-low, remaining an outlier in a global wave of monetary policy tightening.

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