Japanese diplomat Mimura will monitor FX, including speculative movement

The Bank of Japan (BoJ) is Japan’s central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and perform exchange and monetary control to ensure price stability, which means an inflation target of around 2%.

The Bank of Japan engaged in ultra-loose monetary policy in 2013 to stimulate the economy and fuel inflation amid a low inflation environment. The bank’s policy is based on quantitative and qualitative easing (QQE) or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further relaxed policy by first introducing negative interest rates and then directly controlling the yield on its 10-year government bonds. In March 2024, the BoJ raised interest rates, effectively withdrawing from ultra-loose monetary policy.

The Bank’s massive stimulus has caused the yen to depreciate against its major peers. This process was exacerbated in 2022 and 2023 by a growing policy divergence between the Bank of Japan and other major central banks, which opted to raise interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening of spreads against other currencies, dragging down the value of the yen. This trend partially reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

A weaker yen and rising global energy prices led to a rise in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising wages in the country – a key element fueling inflation – also contributed to this move.