BOJ May Step on Accelerator as Yen Pressure Mounts

Dow Jones
Yesterday

1010 GMT - As Japan walks a tightrope between reflation, fiscal credibility and currency stability, there's a strong case for speeding up interest-rate hikes, says J.P. Morgan Private Bank's Yuxuan Tang. While authorities have sought to cushion households from higher energy costs, persistent yen weakness and strains in the bond market are increasing the pressure, she writes. A supplementary budget and a planned tax cut aim to support households, but are fiscally worrisome. The government has tried to reassure markets that it'll avoid increasing overall bond issuance but that's tricky when the BOJ is normalizing policy and JGB yields are sensitive to debt concerns. The fiscal overhang compounds yen weakness, in turning raising imported inflation and eroding purchasing power, Tang adds. Faster rate hikes would limit the circular dilemma created by capital outflows and a weaker yen.

 

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