TOKYO -- The BOJ's quantitative easing policy was introduced in April 2013 to eventually get prices rising at a 2% clip. Along the way, the policy has weakened the yen, to the delight of exporters and market players here. But when the time comes to decide whether Japan's financial system needs to be further flooded with cash, central bank chief Haruhiko Kuroda might not have industry pulling for him to further open the spigots.
After a meeting of BOJ branch managers on Monday, Toru Umemori, head of the Bank of Japan's Nagoya branch, said there are no voices calling for the yen to be further weakened. Instead, he said, there are calls for the BOJ to stand pat.
Umemori also said there are persistent concerns that a further decline in the yen could raise fuel and other commodity prices. It is significant that the branch manager speaking on the issue hails from Nagoya. Major automakers, machinery makers and other manufacturers are based there. These exporters, it appears, are now more concerned with increasing procurement costs than they are with their export numbers.
The branch chief added that companies expect the BOJ to keep the lines of communication open and not to cause fluctuations in the value of the yen.
In other words, they are asking Kuroda not to further open those spigots.
Market players, meanwhile, have strong expectations that the BOJ will soon flood the financial system with even more yen. Share prices have risen dramatically since April 2013, and investors are hoping for these gains to continue.
They may get their wish. In the June ESP Forecast, a survey conducted by the Japan Center for Economic Research, 31 of 36 private sector economists said the BOJ will introduce further "easing" steps in October.
Another BOJ branch manager noted that the gap in expectations between the market and business community is growing. The manager also said that the loudest calls for additional yen-printing seem to be coming mainly from overseas investors.
The yen began falling fast in the second half of 2012, when it became clear Prime Minister Shinzo Abe would take power and bring inflationary policies with him. It fell so fast, in fact, that many companies have been unable to pass on their higher import costs to customers.
To buy these companies more time to raise their prices, the BOJ should mind the yen's fall. This view is gradually taking hold among central bank officials.
But holding the line could also mean hitting the pause button in the BOJ's pursuit of its 2% inflation target -- the primary motive behind its aggressive quantitative easing policy. Views differ on whether inflation -- currently sitting in the lower 1% range -- will continue its uptrend in the second half of this fiscal year and beyond, when the weak yen will begin having less impact.
The yen was trading around 101.50 to the dollar Thursday afternoon in Tokyo. In early April 2013, just before the BOJ introduced its "new paradigm" in quantitative easing, the yen was around 93 to the dollar.