Japan’s Kiuchi: Government yet to meet conditions for declaring official end to deflation

Japan is not yet in a position to officially declare an end to deflation, the country's Economy Minister Minoru Kiuchi said on Friday, noting that the necessary conditions remain unmet. Before making such a declaration, the government will weigh a range of factors to ensure the country does not return to prolonged periods of falling prices, Kiuchi added.

What Are Kiuchi’s Key Messages?

The CPI, GDP deflator and underlying drivers of inflation trends will inform the government’s decision on formally declaring an end to deflation.

Hopes the BoJ conducts policy appropriately in line with its joint statement with the government, which stresses the need for stable, sustainable price stability.

The conditions required for the government to formally declare an end to deflation remain unmet.

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How Is USD/JPY Trading?

USD/JPY is trading at 156.55 at the time of writing, a decline of 1.00% for the day.

Japanese Yen: Common Questions

What are the main drivers of the Japanese Yen?

Among the world’s most actively traded currencies, the Japanese Yen (JPY) is influenced broadly by Japan’s economic performance. More specific drivers include the Bank of Japan’s policy decisions, the gap between Japanese and US bond yields, and traders’ appetite for risk, alongside other factors.

Why do Bank of Japan decisions matter for the Japanese Yen?

Currency control forms part of the Bank of Japan’s mandate, making its actions important for the Yen. At times, the BoJ has intervened directly in foreign exchange markets, usually to weaken the currency. However, political concerns among Japan’s principal trading partners discourage frequent intervention. Between 2013 and 2024, the BoJ’s ultra-loose monetary policy weakened the Yen against its major currency peers as the policy gap between the Bank of Japan and other leading central banks widened. The gradual withdrawal of that ultra-loose policy has more recently provided some support to the Yen.

Why does the US–Japan bond yield gap matter for the Japanese Yen?

By maintaining an ultra-loose monetary policy over the past decade, the BoJ increasingly diverged from other central banks, especially the US Federal Reserve. The resulting widening in the yield gap between 10-year US and Japanese bonds supported the US Dollar against the Japanese Yen. That gap is now narrowing as the BoJ’s 2024 decision to gradually move away from ultra-loose policy coincides with interest-rate cuts by other major central banks.

How does market risk appetite influence the Japanese Yen?

During periods of market stress, investors are more likely to move funds into the Japanese Yen, which is widely regarded as a safe-haven investment because of its perceived reliability and stability. Such turbulence is therefore likely to lift the Yen against currencies considered riskier investments.