Japan pledge for bold action sparks currency war fears

Japan pledge for bold action sparks currency war fears

The promise of “drastic monetary easing” from Haruhiko Kuroda, expected to be confirmed in the top role at the Bank of Japan (BOJ) within weeks, raised concerns over the impact on trade.

Mr Kuroda said he would set no limits on the amount of money the Bank pumps into the economy, warning its current policies were not enough to lift inflation to the 2pc target.

Japan, the world’s third-largest economy, has been struggling with deflation for nearly two decades, with falling prices encouraging consumers to delay purchases in the hope of paying less later – entrenching the downwards economic spiral.

Mr Kuroda acknowledged the likely impact of more aggressive monetary easing would be for the yen to weaken, strengthening Japanese exporters’ competitive edge – but said that was not the direct goal.

“There’s evidence that currencies tend to fall for countries that ease monetary policy on a large scale … but the BOJ’s policy is not targeting currencies,” he told a parliamentary hearing. “The important thing is to ensure price stability and achieve the 2pc price stability goal, although it could affect currencies in that process.”

Mr Kuroda, president of the Asian Development Bank, was nominated for the governor role by Japan’s prime minister Shinzo Abe, whose demands for bolder action have already taken the yen to a three-year low in anticipation of a looser monetary policies.

While opposition parties will need to agree to the appointment, their support is expected as Japan struggles to exit its fourth recession since 2000.

Mr Kuroda is seen as far more dovish than the current central governor, Masaaki Shirakawa, who is due to exit the role on March 19.

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