By Leika Kihara
TOKYO, March 6 (Reuters) – Japan will coordinate with overseas authorities and stands ready to take action against market volatility stemming from the Middle East conflict, Finance Minister Satsuki Katayama said on Friday.
Bank of Japan Deputy Governor Ryozo Himino also said the central bank will be vigilant to yen moves as they could affect underlying inflation and public perceptions of future price moves.
“We need to be mindful that exchange-rate fluctuation has a bigger impact on price moves than in the past. Through this channel, they could affect inflation expectations and underlying inflation,” Himino told parliament, when asked about the impact of recent yen declines.
While the BOJ does not directly target exchange rates, it will scrutinise currency moves given the significant impact they have on economic and price developments, Himino said.
Katayama told the same parliament session the government was ready to take steps to combat the economic blow from the Middle East conflict, including compiling an extra budget.
She said Japan was coordinating with its Group of Seven counterparts on the group’s response to the war, which has disrupted oil transports and jolted financial markets.
“Markets are very volatile in the wake of developments in Iran. We are ready to take all necessary steps, coordinating closely and nimbly with overseas authorities,” Katayama said.
Katayama’s remarks are the latest jawboning by policymakers to arrest sharp yen falls that push up import costs and broader inflation.
A widening conflict in the Middle East has added to Japan’s dilemma by boosting oil prices and jolting global financial markets, clouding the outlook for its economy that is heavily reliant on fuel imports.
The BOJ raised interest rates to a 30-year high of 0.75% in December, taking another landmark step in ending decades of huge monetary support in a sign of its conviction that Japan is progressing toward durably hitting its 2% inflation target.
BOJ executives have signalled readiness to continue raising still-low interest rates, though offering few hints on how soon the next rate hike could come.
(Reporting by Leika Kihara; Editing by Shri Navaratnam)
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