In an annual report released Sunday, the BIS (Bank of International Settlements) called the yen's recent depreciation clearly ''anomalous'' and said Japan should implement tighter monetary policy. ''There is clearly something anomalous in the ongoing decline in the external value of the yen,'' said the BIS report.
The Japanese press is reporting that the MOF (Ministry of Finance, who has the power to order the BOJ to intervene in the forex markets) is not only concerned about mounting pressure from foreign trade partners to strengthen the yen, but also worries that further yen weakness may reduce Japan's global competitiveness, however counterintuitive that view may seem. The real worry is that a weak yen will lead to a shrinking Japanese economic presence in the world, just as the government is trying to revive Tokyo as a major financial center.
The BOJ also apparently believes that the Japanese government should start strengthening Japan's economy to withstand a stronger yen and higher (e.g., more "normal") interest rates.
The negatives for Japan from a weak yen include,
1. Rising raw material purchasing costs for companies.
2. Increased reliance on exports.
3. Problems attracting foreign capital (even though Japan is actively encouraging FDI).
4. Growing inflation pressures (from rising corporate service prices).
5. The prospect of a tsunami of domestic savings flowing overseas to chase higher yields, which already is a structural component of the so-called yen carry trade.
It doesn't appear that the MOF is on the verge of acting on its concern just yet, but the BIS view does carry weight.