By Leika Kihara
TOKYO (Reuters) – Bank of Japan Governor Kazuo Ueda said on Wednesday the central bank could take monetary policy measures if movements in the yen have a major impact on inflation. This escalates his warning against the economic consequences of the currency’s recent sharp falls.
A weak yen affects the economy in several ways, including by driving up import costs and affecting demand for goods and services, Ueda said.
While the BOJ will not attempt to directly control the yen’s movements with monetary policy, it will scrutinize the potentially huge impact they could have on the economy and prices, Ueda said.
“The wage and pricing behavior of companies is becoming slightly more active. Therefore, we must be aware of the risk that the impact of currency volatility on inflation will become greater than in the past,” Ueda said.
“Exchange rate movements can have a major impact on the economy and prices, so there is a chance that we will have to respond with monetary policy,” Ueda told parliament.
The comments are compared to comments Ueda made after the BOJ’s policy meeting last month, when he said the yen’s recent fall had no immediate impact on trend inflation.
Ueda’s comments after the meeting have been cited by some traders as accelerating the yen’s decline by raising market expectations that the BOJ will allow rates to rise from current levels around zero for some time to come.
