The Bank of Japan monitors the bond market

0

A Japanese flag flies atop the Bank of Japan building in Tokyo May 22, 2015. The Bank of Japan stuck to its massive stimulus package and offered a slightly more optimistic view of the world’s third-largest economy on Friday, as a A modest rebound in consumption helped service sector sentiment improve to a one-year high. REUTERS/Toru Hanai

Join now for FREE unlimited access to Reuters.com

Register

HONG KONG, June 24 (Reuters Breakingviews) – Consumer prices in Japan, including energy but not food, rose 2.1% in May, above the 2% target of the central bank for a second consecutive month. This is the wrong kind of inflation, a byproduct of sanctions on Russia and interest rate hikes in the United States rather than healthy consumer demand. With the yield spread between US and Japanese government bonds close to 3 percentage points, the yen has weakened to 135 to the dollar, its weakest since 1998. This will raise the cost of imported goods – the country has been running a trade deficit since July 2021 – further raise prices.

Bank of Japan Governor Haruhiko Kuroda is unfazed. Growth is tepid and inflation at 2% is hardly torrid, even after years of deflation. Japan Inc remains reluctant to invest domestically, one of the reasons the yen is so weak. Such conditions argue for keeping monetary policy loose, but some bond investors are betting Kuroda will have to blink if the yen continues to slide. Other parts of the bureaucracy are already signaling concern. Fighting the BOJ is an infamous “undertaker’s job,” but this time around, it’s not clear who the undertaker is yet.

(By Pete Sweeney)

Join now for FREE unlimited access to Reuters.com

Register

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

Follow @Breakingviews on Twitter

Capital Calls – More concise information on global finance:

US banks take advantage of latest stress-free stress test read more

The call for help from infant formula Read more

Toshiba takeover price adds another twist to AGM Read More

Twisting UK weapons list would seem hopeless Read More

Battery bank success is a red flag for big spenders Read More

Join now for FREE unlimited access to Reuters.com

Register

Editing by Jeffrey Goldfarb and Thomas Shum

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.

Share.

Comments are closed.