On Friday, Japanese Prime Minister Fumio Kishida’s advisory panel on growth strategies urged the government and the Bank of Japan (BOJ) to remain vigilant regarding the impact of the yen’s depreciation. This call underscores the administration’s mounting concerns over the weak yen, which has become a significant challenge as the currency’s decline increases the cost of living for households by raising the prices of imported food and fuel.
“The yen has weakened by about 10% against the dollar since the beginning of this year, and the impact of this depreciation may be reflected in inflation over the next six months to a year,” the panel stated in its draft action plan for Prime Minister Kishida’s “new capitalism” program aimed at driving growth. The draft emphasized that the government and the Bank of Japan should collaborate closely to achieve the 2% inflation target in a sustainable and stable manner through flexible policy management.
“The impact of the yen’s depreciation on prices should be closely monitored as it will eventually be reflected,” the panel noted. This concern about the weak yen was also highlighted in a draft of this year’s long-term economic policy roadmap, putting pressure on the Bank of Japan (BOJ) to consider raising interest rates or slowing its massive bond-buying program—measures some analysts believe could stem the currency’s decline.
BOJ Governor Kazuo Ueda has dismissed the use of monetary policy to directly influence exchange rates but indicated that interest rates could be raised if the weak yen drives inflation higher than anticipated.
Kishida’s cabinet is expected to approve both the action plan and economic policy roadmap later this month.
The draft also called for more government support to help global expansion of Japan’s entertainment content businesses, such as animation, manga, films and gaming.
“Overseas sales of Japanese (entertainment) content are larger than Japan’s steel exports in terms of value,” it said, adding that the entertainment content represents “assets that Japan should be proud of”.
