Fears of currency manipulation have driven many observers to call for the inclusion in free-trade agreements of provisions prohibiting exchange-rate intervention. But such an approach would controvert the most fundamental rule of a flexible exchange-rate regime – and undermine global macroeconomic stability.
TOKYO – This month, the Japanese yen’s exchange rate against the US dollar fell below ¥125, a 13-year low, before rebounding to nearly ¥122 following a statement by Bank of Japan Governor Haruhiko Kuroda that he did not expect further depreciation. But, as Kuroda later clarified, Japan’s monetary policymakers do not seek to predict, much less control, exchange-rate movements. Instead, the BOJ’s goal – like that of any effective central bank – is to ensure the right combination of employment and inflation.
TOKYO – This month, the Japanese yen’s exchange rate against the US dollar fell below ¥125, a 13-year low, before rebounding to nearly ¥122 following a statement by Bank of Japan Governor Haruhiko Kuroda that he did not expect further depreciation. But, as Kuroda later clarified, Japan’s monetary policymakers do not seek to predict, much less control, exchange-rate movements. Instead, the BOJ’s goal – like that of any effective central bank – is to ensure the right combination of employment and inflation.