Japan tries to save the yen
Wednesday brought two important monetary-policy meetings, and the more important one probably wasn’t the Federal Open Market Committee gathering in Washington (see nearby). The Bank of Japan announced significant new steps on its slow and not entirely steady path to monetary normalization in an effort to shore up the yen. The Japanese central bank raised its target short-term interest rate to 0.25% from 0.1%.
It will also taper purchases of government bonds under its quantitative easing program, although very gradually. The pace of new purchases will fall to ¥3 trillion (around $20 billion) per month by early 2026 from ¥6 trillion a month now. No one can accuse Governor Kazuo Ueda of moving with undo haste.
More unusual is why Mr. Ueda said he’s taking these steps: the yen. Japan’s currency has lost significant value in recent months, falling to about ¥162 per dollar in mid-July before a series of government interventions pulled it up to about ¥154.
A major cause of this weakness is the yawning gap between interest rates in the U.S. and Japan. Mr.
Ueda on Wednesday referred to the weak yen as “an important risk" and cited it as “one of the reasons for the policy decision." Officials and politicians are concerned that a weak yen is fueling import-price inflation that’s weighing on consumer spending. From this perspective, Wednesday’s policy change worked as the yen soared to near ¥150. This rise may prove more durable than some recent episodes of modest strengthening because, unlike occasional government interventions to buy yen in the exchange market, Mr.
Ueda has altered the relative interest rates that influence investors’ behavior. This makes Mr. Ueda the only major-economy central banker to admit to being at all
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