American politics rarely factors into the policies set by the Bank of Japan. But Haruhiko Kuroda's recent comments about the yen suggest Washington is very much on Tokyo's mind these days.
Last week, the Bank of Japan governor sent the yen soaring by saying the currency is "unlikely to weaken further in real effective terms." By Monday, he was claiming he wasn't signaling a change in policy. But there's little doubt he was. I've interviewed Kuroda enough times to know how cautious he is when speaking on even anodyne issues, never mind exchange rates. Kuroda's intention seems to have been to maintain the yen's 30 percent drop in value, while reassuring the world he won't weaken the currency any further.
Why would he do that, even as Japan's export engine sputters anew? The answer has less to do with economic theory than international politics — specifically, the upcoming U.S. presidential election. The Japanese government would like nothing more than for China's predatory trade practices to play a role in the campaign, especially amid America's ongoing debate over the Trans-Pacific Partnership trade pact.
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