The weaker yen stemming from the Bank of Japan loose monetary policy has helped the economy and acted as “reverse Plaza Accord,” according to Credit Agricole.
(Bloomberg) — The weaker yen stemming from the Bank of Japan loose monetary policy has helped the economy and acted as “reverse Plaza Accord,” according to Credit Agricole.
The Plaza Accord, signed by major economies in 1985, aimed at weakening the US dollar and lead to the yen strengthening. But recent monetary policy dynamics have done the opposite, as the Bank of Japan’s decision to buck the hawkish shift by the Federal Reserve widened the gap between interest rates in Japan and elsewhere in the world, weakening the yen.
“The weak currency continuing as a result of monetary policy divergence between Japan and other key economies has likely acted as a ‘reverse Plaza Accord’ and has helped revive Japan’s competitiveness,” wrote Credit Agricole analysts Takuji Aida and Arata Oto.
The yen touched the weakest level since November earlier this month. It has lost about 10% in value against the US dollar in 2023, though it was outperforming on Thursday, supported by month-end flows and lower Treasury yields.
While the Bank of Japan has adjusted its yield-curve control policy by allowing bond yields to drift higher, it has kept its policy rate pinned below zero.
“If the BOJ tightens monetary policy prematurely on the belief that a weak currency is bad, the tailwinds from a weak yen, combined with a global economic slowdown, will likely disappear,” they wrote. “Japan’s economy could fall back into a state of deflation and stagnant growth.”
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