As Etsuro Honda, adviser to Prime Minister Shinzo Abe, said today, in September, the Bank of Japan will take decisive action, otherwise «the Japanese would lose the hope that the government is able to beat deflation,» adding that «the likelihood of a decisive easing of the BOJ policy next month exceeds 50%.» Honda said that the central bank should raise the target amount of purchases of Japanese government bonds by 25%, to 100 trillion yen (about US $ 1 trillion).
For three and a half years, the Bank of Japan has been unsuccessfully struggling with deflation. Earlier, in late July, the Bank of Japan decided to refrain from changes in monetary policy. The Bank of Japan left the volume of purchase of Japanese government bonds at 80 trillion yen and kept the rate on deposits of commercial banks at the level of -0.1%. At the moment the yen was up against the dollar by more than 300 points. Prime Minister Shinzo Abe approved this decision of the central bank, however, monetary policy, together with fiscal policy lies at the heart of the economic program of the prime minister. In early August, Abe expressed the hope that the central bank «will take decisive monetary policy measures required to achieve price stability, and will continue to move to the target inflation rate of 2%.»
The limiting factor in enhancing the extra soft policy of the Bank of Japan is the position of the US, which does not approve of any direct action of Japan to weaken the yen.
The minutes of the July meeting of the FOMC of the Federal Reserve published yesterday showed that there is no consensus between the leaders of the Fed about monetary tightening in the United States. In general, it follows from the minutes that a rate hike in September is likely, but the Fed did not assume any obligations on the matter. Market participants are waiting for clearer signals. After the publication of the minutes of the July meeting of the Fed, the dollar fell on the foreign exchange market. Weak US data released last week also contribute to the weakening of the dollar. The uncertainties associated with the assessment of monetary policy in the US have caused volatility in financial markets and the fall in USD/JPY pair below 100, which was another blow to Japanese exporters.
The continuing uncertainty in the global economy, excessively strong yen, Japan's weak macroeconomic indicators, as well as low inflation forced the authorities to seek a solution to a difficult situation.
The next meeting of the Bank of Japan on the issue of monetary policy is scheduled for September 20-21.
The general weakening of the dollar on the foreign exchange market exacerbates the situation with an overly strong yen, as believed by the Japanese government.