Bank of Japan Governor Haruhiko Kuroda has seen the yen depreciate sharply and rapidly twice: at the beginning of his term in office in 2013 and currently, less than a year before his term ends.

There is a big difference between the two episodes.

"The devaluation in 2013 was driven by the Bank of Japan," says Masamichi Adachi, Japan economist at UBS Bank.

“Other central banks are driving the current devaluation.”

Patrick Welter

Correspondent for business and politics in Japan based in Tokyo.

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Adachi alludes to the fact that Kuroda eased monetary policy significantly in 2013/14 by expanding its purchases of government bonds and buying exchange-traded equity funds, thereby weakening the yen.

From March 2013 to July 2015, the yen lost around 32 percent against the dollar, and the exchange rate rose to 124 yen per dollar.

The current devaluation reaches these dimensions.

The yen has lost around 25 percent of its value since December 2020 and was last traded at 128 yen per dollar.

That's a 20-year low.

Since the beginning of March alone, the yen has lost 11 percent against the dollar.

The real effective exchange rate, which takes into account inflation differentials with major trading partners, is at its lowest level since the 1970s.

But in contrast to 2013, the Bank of Japan has not corrected its expansive monetary policy for months.

It is the other large central banks such as the American Federal Reserve, the Bank of England or the European Central Bank that are tightening their monetary policy and thus contributing to the weakness of the yen.

This will not change in the foreseeable future.

Western central banks are working to counter rising inflationary pressures, while the Bank of Japan sees no reason to do so yet.

"The bank's role in the current environment is crystal clear: to persevere with the current monetary easing," Kuroda said in a speech to students in New York late last week.

No change in monetary policy is expected at the Monetary Policy Council meeting this Wednesday and Thursday.

"If the bank throws in the towel at the first sign of inflation, it loses its credibility and undermines the strategy it has pursued for years to break deflationary thinking in Japan," says Frederic Neumann, who is responsible for the analysis of the Asian economies for the bank HSBC.

Inflation in Japan reached 0.8 percent in March.

This value is distorted by special effects.

Most consumers are already feeling inflation of more than 3 percent, writes Kentaro Koyama, chief economist at Deutsche Bank in Tokyo, in an analysis.

The central bank is playing against the financial markets in terms of monetary policy, because the pull of rising long-term interest rates in the West is also pulling up longer-term interest rates in Japan.

This jeopardizes the bank's goal of only allowing the ten-year interest rate to fluctuate in the range of plus/minus 0.25 percent around the zero mark as part of its interest rate curve control.

The central bank has twice been forced to defend the upper limit of 0.25 percent with additional purchases of government bonds, some at a fixed interest rate of 0.25 percent.

At the end of March, the central bank unscheduled bought government bonds for 2 trillion yen (15 billion euros) within three days.

Since last Wednesday, the bank has unscheduled at least 2.3 trillion yen (16.7 billion euros) for government bonds.

Warnings from the Treasury Department

As much as Kuroda emphasizes that the devaluation of the yen is a net benefit for the Japanese economy, cracks are beginning to appear between the government in Tokyo and the central bank in their assessment of the yen's weakness.

Finance Minister Shunichi Suzuki thinks the negatives outweigh the positives.

One of the reasons for this is that the weak yen makes the high energy import bill even more expensive.

Before the important upper house elections in July, the government doesn't like it.