(Bloomberg) --Federal Reserve Chair Jerome Powell's stern message at Jackson Hole has made it clear for Bank of Japan Governor Haruhiko Kuroda that the weaker yen, a major source of concern for Japan's economy, won't be going away anytime soon.
The yen fell to a five-week low Monday morning, after Powell warned against prematurely loosening policy in his speech at the Federal Reserve Bank of Kansas City's Jackson Hole, Wyoming, retreat Friday. With other key central bankers, Powell emphasized his strong resolve to fight inflation, while Kuroda made it clear he's sticking with monetary easing.
The remarks increased selling pressure on the yen, with more expectations for a wider interest-rate differential between Japan and the US to continue for longer. The development reversed a budding market view in the past few weeks that a slowdown in the pace of US rate hikes would stop the yen's weakening trend.
Powell's view is likely to support some analysts' forecasts that the yen will break a key psychological level of 140 per dollar, after it depreciated to 139.39 last month. That's likely to heighten concerns among businesses and households who are already hit by the highest level of inflation in decades excluding the impact of tax hikes.
Still, no immediate action is expected from the BOJ with Kuroda last month clearly denying the possibility of changing policy just to stop the currency's fall.
Halting the yen's decline would take a substantial rate increase by the BOJ, and would end up seriously hurting the economy amid a slow recovery from the pandemic, Kuroda said last month.
He reiterated Saturday his emphasis on the need for wage growth to transform the current cost-push inflation into a more sustainable form of price gains in the economy. That's something that's so far unlikely to emerge clearly before the end of Kuroda's tenure in April.
"We have no choice other than continued monetary easing until wages and prices rise in a stable and sustainable manner," Kuroda said during the Jackson Hole conference. The BOJ concludes its next policy meeting on Sept. 22.
The event also reminded Kuroda that the weaker yen isn't just a domestic issue.
In a panel discussion during the conference, Bank of Korea Governor Rhee Chang-yong directed a comment toward Kuroda, remarking that the weaker yen has also been causing problems in South Korea.
"Governor Kuroda has been a respected mentor and a long-time adviser to me. But he is recently not helping me at all, in the short term," Rhee said, drawing widespread laughter in the room. "In the short term, yen depreciation giving a lot of headache to me."
Read more: Bank of Korea's Rhee Keeps Door Open for Outsized Rate Hike
Many investors see Japan and Korea as largely paired for their geographical proximity and industrial similarity.
A weaker yen may raise concerns among Koreans that their exports could lose relative competitiveness, even though the trade relationship between the two countries has grown more collaborative than competitive over the years through a high-tech supply chain.
Another possibility is the depreciation of the yen raising the value of the dollar, and thereby weakening the won further.
(C)2022 Bloomberg L.P.
