Japanese Yen Strengthens on BoJ’s ‘Whatever We Can’ Approach to Rescue Economy

The Japanese yen is strengthening against its G10 currency counterparts midweek, driven by the central bank’s signal that it would impose additional monetary stimulus to save the world’s third-largest economy. Investors were also bullish on new data showing banks are increasing their lending programs. With Tokyo planning to top up its $1 trillion stimulus efforts, could Japan avoid a financial crisis in the aftermath of the coronavirus?

Bank of Japan (BoJ) Governor Haruhiko Kuroda said on Tuesday that the central bank would do “whatever it can” to prevent additional fallout from the coronavirus pandemic. In his semi-annual testimony to Parliament, Kuroda noted that the BoJ would use all available tools to stimulate the economy. He alluded to money-printing, cutting interest rates, and increasing market operation tools as just some of the measures the central bank could employ.
Kuroda did dismiss purchasing municipal bonds, something that many central banks have started doing.

What’s most important for us is to take steps to smoothen corporate financing and stabilize markets. We will do whatever we can as a central bank, working closely with the government.

Prime Minister Shinzo Abe and his Cabinet confirmed that they are ready to help the country’s massive automobile industry that has been impacted by global supply chain disruptions and slumping demand. Chief Cabinet Secretary Yoshihide told reporters that it would use any available tool to support the nation’s vehicle and parts makers, including direct financial assistance and bailouts.

The industry is suffering deeply from sluggish US and European sales, and suspension in domestic output. We’ll deploy all policy means to assist in their accessing funding.

Abe has also promised to unleash additional fiscal support on top of his record $1.1 trillion relief and stimulus package. But this is unlikely to include tax cuts due to Japan’s ballooning public debt levels, says Finance Minister Taro Aso. The prime minister is considering aid to businesses struggling to pay rent, corporate subsidies, and support for students who have lost part-time jobs.
Meanwhile, according to the BoJ, bank lending surged 3% last month over the same time a year ago. For the last 12 months, the value of loans has risen by about 2%. Foreign exchange reserves jumped $2.4 billion to a little more than $1.368 trillion in April.
The Coincident Index came in at 90.5 in March, while the Eco Watchers Survey clocked in at 7.9 in April.
The USD/JPY currency pair declined 0.17% to 106.96, from an opening of 107.15, at 16:07 GMT on Wednesday. The EUR/JPY fell 0.32% to 115.86, from an opening of 116.21.
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