Leika Kihara reports from TOKYO for Reuters, highlighting Japan’s need to clear up any misconceptions U.S. President Donald Trump might have about its monetary policy. Trump recently voiced concerns that both Japan and China were devaluing their currencies, which he argued could be detrimental to the United States.
When asked about Trump’s remarks on Friday evening, former Bank of Japan (BOJ) Governor Haruhiko Kuroda explained on Japanese television that Japan’s ability to bolster the yen is somewhat constrained, especially if the dollar surges due to expected U.S. inflation hikes from Trump’s tariff plans.
Kuroda emphasized that Japan has been striving to keep the yen from depreciating too much. Efforts include intervening in the exchange-rate market to strengthen their currency. After a long phase of ultra-loose monetary policy, the BOJ has started increasing interest rates. Additionally, the government has stepped in to stabilize the currency, particularly after the yen plummeted to a 38-year low against the dollar. It recovered slightly, with the dollar closing this week at around 148 yen.
Kuroda firmly stated that the Bank of Japan has not been deliberately pushing the yen down with its monetary policies. Correcting any misunderstandings about their intentions is crucial, he remarked, noting this was his first television appearance since retiring from the BOJ leadership.
As for the central bank itself, it is in the process of moving away from the aggressive monetary easing Kuroda introduced during his tenure from 2013 to 2023. His initiatives were designed to pull Japan out of deflation and sluggish growth through a massive asset-buying strategy from 2013 onward, followed by the implementation of negative interest rates and control over bond yields in 2016.
Critics, including members of the first Trump administration, argued that these measures weakened the yen, supposedly giving Japanese exports an unwarranted edge. However, under the current Governor Kazuo Ueda, the BOJ has begun to dismantle these strategies, with a significant shift in March last year and a hike in short-term rates to 0.5% in January. This move comes with the belief that Japan is nearing a sustainable achievement of its 2% inflation target.
Kuroda expressed support for the BOJ’s trajectory, indicating that gradual rate hikes are the right approach. Keeping policies too loose for too long could contribute to rising inflation—a pitfall the BOJ aims to avoid by identifying levels considered neutral for the economy.
He further elaborated that rates should not be increased too quickly beyond neutral levels, nor should they remain low for extended periods. In January, Kuroda reiterated in a research paper that the BOJ is likely to continue raising rates, anticipating the 2% inflation goal can be sustainably achieved.
For further insights, the reporting contributions of Takahiko Wada, with editorial oversight by William Mallard, complement Kihara’s analysis.
