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Japan Warns of Need for Stable Currency As Weak Yen Raises Input Costs

  • Government carefully monitors currency movements – Isozaki
  • Exchange rate stability is “extremely important”
  • Weak yen, rising energy costs, risk of cold consumption
  • Markets see 125 yen vs. dollar as the line in the sand of the BOJ
  • Focus on BOJ Kuroda’s comment on the yen at next week’s meeting

TOKYO, Oct.20 (Reuters) – Japan will closely monitor currency movements as exchange rate stability matters, a senior government official said on Wednesday, after the yen hit its lowest level in four years relative to to the dollar.

The dollar has gained 4.6% against the yen since its last low in mid-September, as rising bets that the United States will soon begin to abandon its pandemic policy, while Japan appears poised to maintain. its interest rates low for a while.

The dollar climbed to 114.585 yen for the first time since November 2017. read more

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“The stability of the currency is extremely important, so we will continue to monitor market movements carefully,” Yoshihiko Isozaki, deputy chief secretary of the cabinet, said at a press conference when asked about the fall of the yen.

But he declined to comment on specific levels.

Japanese policymakers generally favor a weak yen because it gives exports a competitive edge abroad.

But the recent drop in the yen, coupled with rising energy prices, has heightened concerns about higher costs for households and retailers still reeling from the coronavirus pandemic.

Consumer pain does not bode well for Prime Minister Fumio Kishida’s efforts to distribute more wealth to households, a pledge he made ahead of the lower house elections on October 31.

“For consumers, a weak yen exacerbates the pain caused by rising commodity costs. It is particularly damaging for low-income households,” said Ryutaro Kono, chief economist at BNP Paribas.

With oil prices hitting all-time highs in seven years, Kishida said on Monday that Japan, which imports almost a tiny amount of its energy needs, will urge global oil producers to increase production.

Markets are focused on what Bank of Japan Governor Haruhiko Kuroda will say about recent yen movements during his briefing scheduled after the bank’s policy meeting next week.

Some analysts see 125 yen against the dollar as Kuroda’s line in the sand, a level marked in 2015 when he warned that the real and effective rate of the yen was “unlikely to fall further.”

If oil and the dollar / yen stay around current levels for a year, core consumer inflation will accelerate to almost 1% – below the BOJ’s 2% target but high enough to harm households, said Kono of BNP Paribas. Consumer staples prices were flat in August from a year earlier, ending a string of 12-month declines due to rising energy costs. Read more

“For Japanese households who have barely seen their incomes rise, this could become a big political problem and affect monetary policy over time,” he said.

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Reporting by Leika Kihara; Additional reporting by Ritsuko Ando; Editing by Christopher Cushing, Clarence Fernandez and Ana Nicolaci da Costa

Our standards: Thomson Reuters Trust Principles.