Two days before a rate review by the Bank of Japan, Prime Minister Naoto Kan called for the central bank’s support in protecting the Japanese economy and watching the markets closely for currency intervention and more monetary easing in order to curb the yen’s rise.
Japanese officials fear that the currency’s near 5 percent surge in the past month will harm the economy, which slid into its second recession in three years following the March 11 earthquake and tsunami.
BOJ Governor Masaaki Shirakawa signalled the central bank’s readiness to ease policy this week, saying the board will scrutinise the negative impact that recent yen gains could have on the economy.
“Japan’s economy is in the process of recovering from disaster, so we must closely watch currency moves. We want the BOJ to continue to support the economy,” Kan told a regular meeting of cabinet ministers to discuss risks to the economy, which the central bank governor attended.
The yen has been soaring recently especially against the U.S. dollar and the euro due to an increase of risk aversion. The recent stalemate in talks over an agreement to raise the U.S. debt ceiling has propelled the yen to four-month highs against the greenback.
However, with the debt deal already signed and passed into legislation on Tuesday, this helped ease the dollar’s fall, and helped keep the yen steady.
Meanwhile, debt issues in the Euro zone continue to linger, and with Italian and Spanish bond yields reaching 14 year highs this week, renewed concerns of debt contagion are growing.
Based on current events, speculation is strong that the Bank of Japan will ease monetary policy this Friday in an effort to tame the yen.