BOJ Caught Between Inflation Fight and Yen Support Amid Massive Intervention

Sayuri Shirai, a former member of the Bank of Japan's policy-making board, believes that the BOJ must side with the government to combat inflation and support the yen. The Japanese economy is facing challenges from a sharply depreciating currency, which has stabilized temporarily after a massive intervention by Japan and the US Treasury.

Shirai points out that currency interventions alone are insufficient in addressing the root cause of yen weakness: the interest rate differential with other major economies. She argues that only a shift in BOJ policy can address this issue.

The BOJ faces mounting pressure to normalize its ultra-loose monetary policy, especially given the sharply depreciating yen. However, this is complicated by Japan's weak domestic economy and the government's preference for expansionary fiscal policy and low interest rates.