The Bank of Japan plays it cool on the yen ahead of the G20 meeting

02/14/2013 6:11 pm EST


Jim Jubak

Founder and Editor,

As expected the Bank of Japan decided to lie low today ahead of tomorrow’s meeting of leaders of the G20 economies in Moscow. Japan’s central bank kept interest rate policy steady, didn’t increase its program of asset purchases, and didn’t pour any verbiage on the currency wars fire. That topic, according to leaked memos ahead of the conference, looks likely to provoke heated discussions behind closed doors as host Russia seems determined to get a statement condemning government intervention in the currency markets out of the meeting and Japan and the United States equally determined to keep the concluding statement as vacuous as possible.

I think there’s every chance that Japan will resume its weak yen policy after the meeting—although perhaps with less inflammatory language from cabinet officers. Today’s report showing that GDP fell in Japan by an annualized 0.4% in the fourth quarter just about guarantees that the Abe government will follow through on its plans to stimulate the economy and weaken the yen. The median forecast among 32 economists surveyed by Bloomberg called for a 0.4% increase in fourth quarter GDP. (The government also released revised figures for the third quarter showing the economy contracted in that period at a 3.8% annual rate.)

On the bad economic news—and a statement from Kazumasa Iwata, a candidate for governor of the Bank of Japan that 90-100 yen to the dollar represented an equilibrium exchange rate—the yen fell today ending a two-day advance. At 1 p.m. New York time the yen traded at 94.04 to the dollar. It finished the day at 92.89.
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