BOJ opportunities to limit the strength of the yen gradually depleted. Despite the shift to negative interest rates, the yen has risen against the dollar by over 10% since the beginning of the year.
On Tuesday, Finance Minister Taro Aso has threatened to intervene in currency markets, saying that the Japanese government will not tolerate one-side rise of the yen. This somewhat explains the short-term depreciation of the yen by 2%.
Many analysts think that the effect however will be limited and short-term. In addition, the policy of interest rate hikes by the Fed creates conditions for the rise of the Japanese currency.
While some analysts consider a direct intervention of the Parliament of Japan in the foreign exchange market, others remains doubtful and still expect another move that would limit the power of the currency and create conditions for economic growth, which is pretty close to a recession.
Despite a record budget of 96.72 trillion yen for fiscal 2016, Prime Minister Shinzo Abe plans to increase government spending and slow the increase in sales taxes. The problem is how higher costs will be paid as Japan is the largest public debtor. One obvious way is BOJ to ensure payment of larger government spending, which actually are "helicopter money".
It would be quite easy to start and almost impossible to stop.
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