Agricultural Bank of Japan: The current policy choices of the Bank of Japan actually have the effect of reversing the Plaza Accord
Takuji Ada, an analyst at Credit Agricole, said the Bank of Japan's (BoJ) loose monetary policy had weakened the yen, which helped the economy and helped to overturn the Plaza Accord.
"The yen's continued weakness due to monetary policy divergence between Japan and other major economies may have acted as a reversal of the Plaza Accord and helped revive Japan's competitiveness," he wrote in a note. Conversely, if the BOJ tightens too soon, the benefits of a weak yen could disappear. The Japanese economy could slip back into deflation and stagnant growth."
The Plaza Accord, signed by Japan (JPN) in 1985, was designed to weaken the dollar and cause the yen to strengthen. But recent monetary policy dynamics have led in the opposite direction, as the BOJ has kept its policy rate below zero despite tweaking its yield curve control (YCC) policy, allowing bond yields to rise, in stark policy divergence from the hawkish positioning of the US Federal Reserve and other major central banks. It has widened the interest rate gap between Japan and the rest of the world and weakened the yen.
Earlier this month, the yen hit its lowest since November. In 2023, the yen depreciated by 10% against the dollar.
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