Featured in this podcast are Hiroshi Ugai and Benjamin Shatil. The pace of recent yen depreciation has been remarkable, and the debate around its effect on the Japan economy is understandably intensifying. Under such conditions, concerns about the rise in import prices are mounting, but the impact of yen depreciation on inflation has been mild so far, while that on growth is still positive. That said, current yen depreciation highlights a divide between direct sufferers and beneficiaries, raising political issues. In particular, attention should be paid as well to its impact on corporate and household sentiment. BoJ is unlikely to adjust YCC due to yen depreciation unless it faces a significant rise in political pressure, in which case the BoJ could temporarily allow the 10yr yield to exceed the upper band. If any relief in yen weakness is temporary, the impact would not last. More drastic measures would be from the income distribution side if needed. At this point, currency intervention is not on the table.

This podcast was recorded on Apr 20, 2022.

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