The Bank of Japan has resolved to keep interest rates low. The Bank of Japan’s (BOJ) unusual stance has propelled the yen to its weakest level against the dollar in two decades. The weak yen is one reason prices are rising in Japan, with consumer price inflation expected to approach the central bank’s longstanding 2% target in the next month or two. Japan is paying more in yen terms for imports such as oil and food, while global energy shortages and supply-chain bottlenecks also push prices higher. BOJ officials believe the current inflation is a one-time phenomenon driven by factors outside of their control. In BOJ’s mind, such “cost-push” inflation contains the seeds of its own demise because it is likely to tamp down demand and cool the economy. Japan and the U.S. will likely discuss the idea of coordinated currency intervention to stem further yen depreciation during an upcoming bilateral finance leaders’ meeting.
Japan’s Inflation Finally Taking Off
The weak yen is one reason prices are rising in Japan, with consumer price inflation expected to approach the central bank’s longstanding 2% target in the next month or two.
(Canva.com)
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