Column: Governor Kuroda’s beliefs and concerns about the official residence, a clash if the cabinet approval rating declines | Reuters

[Tokyo 1st Reuters]–The Bank of Japan is making every effort to stop the rise in long-term interest rates. There is no doubt that the strong will of Haruhiko Kuroda, the governor of the Bank of Japan, is working there. Kuroda’s belief that premature monetary easing amendments are “harmful” to the Japanese economy can be seen from the BOJ’s response. However, under the current domestic and foreign economic conditions, maintaining restraint on interest rates will lead to a weaker yen.

On April 1, the Bank of Japan is making every effort to stop the rise in long-term interest rates. The photo is of the Bank of Japan’s governor, Haruhiko Kuroda (front), who responds at the Upper House Budget Committee in January. On the far left is Prime Minister Fumio Kishida (2022 Jiji Press)

For the Fumio Kishida administration, which is trying to curb high prices, the accelerating depreciation of the yen will be a headache. If the consumer price index (excluding freshness, core CPI) after April rises to the 2% level and the cabinet approval rating begins to decline, the difference between the Kishida administration and the BOJ’s vector may become clear. There is sex. From now on, the focus will be on the depreciation of the yen, the CPI, and the trend of the approval rating.

The recent measures by the Bank of Japan to curb long-term interest rates are so fierce that they can be described as “moretsu.” The limit operation was carried out twice on March 28, and the continuous limit operation on 29th to 31st was notified. On the 30th, a temporary operation was held, and interest rates in the ultra-long-term zone were held down, showing the market’s determination to remain unrelenting. Long-term interest rates temporarily dropped to 2.00% in the market on April 1.

Kuroda told Governor Kuroda that it was the deflationary phenomenon of the Japanese economy that pushed the Japanese economy into a long-term stagnation, and that the Bank of Japan’s response, which began to move from monetary easing to tightening as soon as the economy began to improve, was “premature.” I think it was reflected.

Even if the CPI is currently in the 2% range, it is a cost-push-type price increase due to the rise in crude oil prices and other international commodity prices, and it is not a price increase as a result of the rise in the body temperature of the Japanese economy due to excess demand. It seems that there is also a strong desire to fine-tune monetary easing here, again, to follow the rut of premature tightening.

It can be said that the belief of Governor Kuroda lies in the background of the total mobilization of operations at the end of March, which seems to be fierce. If the long-term interest rate approaches 0.25% even in 2022, the limit operation will be executed many times to thoroughly suppress it. For Governor Kuroda, who once carried out dollar-buying and yen-selling interventions to prevent the appreciation of the yen as a finance minister, there seems to be a strong recognition that the strength of the “power of the authorities” is the basis of market control.

Also, regarding the side effects of interest rate restraint and the progress of the depreciation of the yen, which is a concern in some markets, at the meeting on March 18, “the depreciation of the yen will not change to a positive structure for the economy” and “the depreciation of the yen is currently It is a mistake to say that it is negative for the economy, “he said, praising the effect of yen depreciation. For Governor Kuroda, it is a mistake to weigh the harmful effects of interest rate restraint and the depreciation of the yen, and it does not seem to be a pain to the progress of the depreciation of the yen.

On the other hand, for Prime Minister Kishida, who issued an instruction on March 29 to formulate comprehensive emergency measures against crude oil prices and high prices that will be spurred by Russia’s invasion of Ukraine, the progress of the depreciation of the yen is different from Governor Kuroda’s view. Imagine that it looks like a “picture”.

Food price increases, which have been prominent this year, have been accelerating since April. Electricity prices are expected to rise further in response to the sharp rise in crude oil prices and liquefied natural gas (LNG) prices, and a wide range of people are beginning to realize the rise in prices.

Major manufacturing companies are likely to raise wages in the 2% range in this spring battle, but non-manufacturing industries that have not recovered from the impact of the spread of the new coronavirus infection, especially small and medium-sized enterprises, are not able to raise wages in a considerable proportion. That’s the situation.

It can be said that it is natural that the voice that “life will be difficult” will spread when the price increase of more than 2% from the previous year becomes a reality.

In addition, some primary industry workers such as agriculture, forestry and fisheries say that they are facing a deficit management due to a sharp rise in crude oil prices. Therefore, Prime Minister Kishida issued the above “instruction”, but as the yen depreciates, the rate of increase in yen-equivalent gasoline, heavy oil, light oil, etc. will increase, and not only will the screaming people suffer more. , The amount of money to be invested in the measures to be put together will increase.

The depreciation of the yen, which exceeds 125 yen even for major companies, is directly linked to the increase in purchases of imported raw materials and the sharp rise in electricity prices used for factory operations, and the story is so simple for export companies, who have been told that the depreciation of the yen is a plus. Is disappearing. Kengo Sakurada, the secretary general of the Keizai Doyukai, said at a press conference on March 29, “I don’t think the current level of exchange is appropriate.”

At present, the depreciation of the yen has subsided due to the fall in crude oil prices due to the announcement of the strategic petroleum stockpiling plan by US President Joe Biden, and the repatriation of Japanese companies before the end of March.

However, the rise in crude oil prices was greatly affected by the major changes in the supply-demand relationship caused by Russia’s invasion of Ukraine and the subsequent sanctions on Russia by Western countries, and the release of oil reserves alone turned to a basic price decline. There will be no.

In addition, the US Federal Reserve’s (FRB) rate hike after May is likely to raise 50 basis points (bp), and it is not unlikely that the yen will depreciate again.

<125.86 yen breakthrough and upper house election>

After the inauguration of Governor Kuroda, 125.86 yen has reached the peak of the dollar’s appreciation and the yen’s depreciation, but the author expects that it will break through in the not too distant future.

As a result, the rate of increase in the CPI will increase, and it is possible that the trend in the 2% range will be prolonged. I don’t think the Kishida administration will “acknowledge” when this phenomenon becomes a reality. This is because the acceleration of price increases may affect the ballot counting before the voting date of the upper house election, which is expected to be in July.

Certainly, the candidate for the Constitutional Democratic Party, the first opposition party, has been delayed, and the selection of the opposition unification candidate in the one-person district, which may decide the victory or defeat, is likely to run into a deadlock because the Democratic Party for the People is taking a stance from the ruling party. It has become. There seems to be a voice in the ruling party that “it cannot be defeated”, but in the upper house election, which is not a government choice, the government’s missteps directly lead to a reduction in the number of seats. In particular, if the number of votes is reduced by proportional representation, it cannot be said that there is no unexpected LDP defeat.

Prime Minister Kishida and the official residence staff will do their utmost to investigate the cause if the approval rating begins to decline in the upcoming polls. If rising prices become the biggest dissatisfaction with the administration, it is expected that voices saying “stop the depreciation of the yen” will rise within the government and the ruling party.

For Kuroda, this case is a nuisance. Even if it is explained logically, the situation that “does not affect the hearts of politicians” may create a gap between the government and the Bank of Japan.

If there is a ceasefire agreement immediately under the sudden turn of Russia and Ukraine, or if there is an inflow of Iranian crude oil into the world market due to the return of the United States to the Iran nuclear agreement, the crude oil price will drop sharply and the yen will sharply shift from a weak yen to a strong yen. Maybe. If this happens, happy developments await for both the government and the Bank of Japan.

On the contrary, if the yen depreciates, the difference between the stances of the government and the Bank of Japan may be highlighted, which may give speculators a good chance.

● Background news

・ WRAPUP 1-BoJ announces “total mobilization” of government bond operation over 2 trillion yen. Yen appreciation even when interest rates fall

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