The yen fell against the US dollar yesterday as the Bank of Japan (BOJ) left borrowing costs unchanged and warned of uncertainty over the economic policies of US president-elect Donald Trump.
Japan’s currency slid past ￥156 per US dollar, extending a retreat that began on Wednesday when the US Federal Reserve forecast it would make fewer interest rate cuts.
BOJ Governor Kazuo Ueda told reporters after its announcement that officials would hike interest rates if prices and the Japanese economy develop as they expect.
Photo: Reuters
However, he warned that “uncertainty surrounding economic policies by the upcoming [Trump] administration is high, so I believe we will need to size up the possible effect.”
“The upcoming administration’s financial, trade and immigration policies have the potential not only to affect the US economy and prices, but also significantly impact the global economy” and financial markets, Ueda said.
Trump is due to return to the White House next month, having won an election last month after pledging on the campaign trail to impose stiff tariffs on imports, sparking trade war fears.
Earlier in the day, the bank said it would keep interest rates at about 0.25 percent, holding back on what would have been its third hike this year.
The yen passed the ￥156 level as Ueda spoke, compared with ￥153.66 on Wednesday morning.
The yen has cratered from its early 2022 levels of about ￥115 per US dollar, before Russia’s invasion of Ukraine.
That is due in part to a mismatch between the BOJ’s low interest rates to support the economy while other central banks including the Fed tightened monetary policy, which they are now unwinding.
The US central bank on Wednesday cut rates by a quarter point, but signaled a slower pace of easing ahead owing to sticky inflation and uncertainty over Trump’s plans.
Analysts said BOJ policymakers were waiting for a clearer picture to emerge of next year’s wage increases before announcing another interest rate rise.
Political factors were also at play after the government passed an extra budget worth nearly ￥14 trillion (US$89.4 billion) to help pay for a massive economic stimulus package.
It includes handouts for low-income households, fuel and energy subsidies and assistance for small businesses.
Japanese Prime Minister Shigeru Ishiba is hoping the funds would lift the economy, but also boost his popularity after the ruling coalition’s worst election result in 15 years.
“As the minority government is discussing budget and tax reforms involving the opposition... it would be bad timing for the BOJ to hike its rate” as it could drag on the economy, Tsuyoshi Ueno, senior economist at NLI Research Institute, said ahead of yesterday’s decision.
Shotaro Kugo, senior economist at Daiwa Institute of Research, said the group was expecting a rate hike next month by the BOJ.
“If you consider the risks connected to ... Trump, it would be better for the BOJ to wait until January or even March, to have more information about Trump’s policies,” he said.
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