Japan Monetary Policy


Japan struggles against rising yen and earthquake effects

The yen continues to rise despite the authorities' efforts to curb rapid appreciation. On 4 August, the Japanese authorities intervened in the foreign exchange market to tame the appreciation of the yen. The August move represented the third intervention since September 2010 and pushed the yen to a three-week low of 80.20 JPY per USD from around 77.10 JPY per USD. However, the impact of the unilateral market intervention has no effects and by the end of August the yen traded at 76.58 per USD, which represented a 1.3% gain compared with the previous month. On a year-on-year basis, the yen appreciated a nominal 6.9% against the USD, lifting the yen to the strongest level in more than 50 years. As the market interventions prove ineffective to stem the steady appreciation of the yen, the government is adopting additional measures. On 26 August, the Finance Ministry announced a USD 100 billion facility to help companies to cope with the erosion of competitiveness in international markets. The government will transfer some of its USD 1.1 billion foreign exchange reserves to the state-owned Japan Bank for International Cooperation, in order to aid exporters and promote purchases overseas. Meanwhile, at its monetary policy meeting on 4 August, the policy board of the Bank of Japan (BoJ) decided unanimously to increase the amount of the Asset Purchase Program by about JPY 10 trillion (USD 128 billion) to JPY 50 trillion (USD 640 billion).The BoJ deemed it necessary to enhance the program to ensure a successful transition from the recovery phase following the earthquake disaster to a sustainable growth path with price stability. Moreover, the Bank decided to leave the collateralized overnight call rate unchanged at around 0 to 0.1%.

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