Japanese yen strengthens sharply as BOJ member calls for policy overhaul

Investing.com-- The Japanese yen strengthened sharply against the dollar on Thursday, crossing key levels after a Bank of Japan member called for an overhaul to the bank’s ultra-dovish policy, including an exit from yield curve control and negative interest rates.

The yen jumped 0.5% to 149.87 to the dollar, recovering swiftly from the 150 level it had maintained against the greenback for nearly a month.

BOJ board member Hajime Takata said on Thursday that the central bank must consider an exit from its ultra-loose policy, flagging increasing prospects for inflation achieving the BOJ’s 2% annual target. He also said that higher wages will push up household income and make the target more achievable.

Takata called on the bank to abandon its yield curve control measures, and also raise interest rates. Under its massive stimulus program, the BOJ currently allows benchmark bond yields to move in a range of -1% to 1% around a base of 0%, and has held short-term interest rates at -0.1% for nearly a decade.

Takata’s comments drummed up bets that the BOJ was close to ending this policy, which bodes well for the yen. Hotter-than-expected consumer price index inflation data for January, released earlier this week, also saw markets pricing in the possibility of an end to the BOJ’s stimulus policies by as soon as April.

Takata's comments offered some relief to the yen, which was languishing at three-month lows on the prospect of higher-for-longer U.S. interest rates. This trade had pushed flows into the dollar and battered the yen over the past two years, at one point putting the currency at its weakest level in over 30 years.

But weakness in the Japanese economy still casts some doubt over the BOJ’s plans. The economy unexpectedly entered a recession in the fourth quarter of 2023, while retail sales and industrial production data for January painted a middling picture.