BOJ’s Kuroda Faces Resistance to Faster Monetary Easing

The yen’s effective exchange rate against a basket of currencies was at 77.2 at the end of August, lower than its 10-year average of 92.93 and near a more than two-decade low of 74.91 reached in January. Its nominal rate broke above 110 per dollar last week for the first time since 2008.

Prime Minister Shinzo Abe said yesterday that higher energy prices caused by the depreciation would affect consumers and small businesses, while policy makers in South Korea expressed concern that a weak yen may hurt its exports. Japan’s trade ministry last week unveiled an initiative pressing large businesses to assist small firms to pass on rising input costs.

“There is a stagflation mentality spreading among consumers,” said Tomohisa Fujiki, head of interest-rate strategy in Japan at BNP Paribas SA, referring to a situation of slow growth and rapid inflation. “The BOJ will be reluctant to add stimulus aggressively as some of the negative impacts of a weaker yen start to emerge.”


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