BOJ Vigilant Over Yen Weakness, Warns of Inflation Risks

The Bank of Japan (BOJ) is closely monitoring the yen's movements after it slid past the psychologically significant 160 mark against the US dollar, its weakest level since July 2024. BOJ Governor Kazuo Ueda emphasized that while the central bank doesn't directly target exchange rates, fluctuations in the currency remain a critical factor influencing economic activity and price trends.

A weaker yen raises import costs, particularly for energy and raw materials, feeding into domestic inflation, a growing concern in Japan's evolving economic landscape. The BOJ chief noted that the pass-through of currency movements into inflation has become more pronounced than in the past due to a shift in corporate behavior, with firms increasingly willing to raise prices and wages.

Policymakers are carefully evaluating how sustained yen weakness could influence the broader economic outlook and price stability. In March, the BOJ kept its short-term interest rate unchanged at 0.75% but maintained a tightening bias, flagging risks from rising oil prices driven by ongoing geopolitical tensions in the Middle East.