Minutes from BoJ’s April 25-26 meeting revealed that board members are closely monitoring the ongoing risks posed by the weak Yen and its effect on inflation, which could force a monetary policy response.
“Some members” emphasized that exchange rates are crucial factors influencing economic activity and prices, suggesting that “monetary policy responses would be necessary” if there were significant changes in the economic outlook or associated risks.
One of these board members noted the “trilemma of international finance,” arguing that monetary policy should not be used solely to stabilize foreign exchange rates. However, they acknowledged that if exchange rate movements impacted firms’ medium- to long-term inflation expectations and corporate behavior, this could “raise the risk of prices being affected,” making monetary policy adjustments “necessary.”
The minutes also reflected a shared understanding among members that if underlying inflation increases in line with forecasts, BoJ would adjust its degree of monetary accommodation. Additionally, any changes in the outlook for economic activity and prices, or shifts in related risks, would warrant adjustments to the policy interest rate.
