By Leika Kihara
WASHINGTON (Reuters) -Bank of Japan Governor Kazuo Ueda said on Thursday the central bank may raise interest rates again if the yen’s declines significantly push up domestic inflation.
“There’s a possibility the weak yen could push up trend inflation through rises in imported goods prices,” Ueda said in a press conference after attending the Group of 20 (G20) finance leaders’ meeting in Washington.
“If the impact becomes too big to ignore, it might lead to a change in monetary policy,” he said, signaling the chance of another rate hike depending on the inflationary impact of the weak yen.
The BOJ will scrutinize how the yen’s declines so far this year have affected the economy and prices, and take the findings into account in producing fresh quarterly growth and inflation forecasts due at next week’s policy meeting, Ueda said.
A broad dollar rally driven by receding market expectations of a near-term U.S. interest rate cut has recently pushed the yen to a 34-year low, heightening the chance of currency intervention by Japanese authorities.
Japanese Finance Minister Shunichi Suzuki, speaking at the same press conference, said the yen’s recent declines likely reflect various factors, not just interest rate differentials.
“Exchange-rate levels aren’t determined just by interest rates. Various other factors, such as each country’s current account balance, market participants’ sentiment, and speculative trade, drive currency moves,” Suzuki said.