Stocks and the dollar took a hammering in Tokyo Thursday after Japan's central bankers kept monetary policy steady.
"Japan's economy is likely to expand moderately as a trend," the central bank's governor, Harukiko Kuroda, told reporters following the market close.
Although the Bank of Japan (BOJ) inaction was widely expected it still sent the Japanese currency soaring. The yen has recently emerged as a safe haven for jittery investors amid concern about the U.S. economy and the increasing chances of a British exit from the European Union in the referendum next Thursday.
“Obviously keeping the BOJ’s powder dry in the event of a global shock if Britain votes to leave is also important,” said Tobias Harris, vice president of Teneo Intelligence.
The yen rose more than one percent against the U.S. dollar in Asia trading Thursday. In late afternoon trading in Asia the greenback fell into the 103 yen range, a level not seen since 2014.
A government spokesman in Tokyo characterized the yen's rise as too rapid and speculative and said officials are keeping a close watch on the currency market.
“Whether or not Japanese exporters can withstand the surging yen, I have a hard time seeing how this government intervenes in the foreign exchange markets,” amid widespread fears in the U.S. Congress about currency manipulation, Harris told VOA.
The American presidential campaign also appears to be a factor restraining the Japanese government, according to Harris, a former staff member of a Japanese lawmaker.
“It also knows that intervention could give more ammunition to (Republican party presumptive nominee Donald) Trump, whose election Japan’s leaders rightly fear,” he said. “The Abe administration will do whatever it can to talk down the yen, it will use other tools to boost demand, it will hope and pray for a US interest rate hike sooner rather than later - but I don’t think Tokyo will intervene before the US presidential election.”
The yen has now gained 13 percent on the dollar for the year. It is also now at multi-year highs against the sterling, euro and Australian dollar.
The benchmark Nikkei 225 stock index in Tokyo fell 485 points to close down three percent.
The turmoil is another indication of the difficulties confronting Prime Minister Shinzo Abe who has attempted to rejuvenate Japan's economy through his three-pronged “Abenomics” plan of massive quantitative easing, increased government spending and structural reform.
But the Bank of Japan cannot resolve the fiscal woes afflicting the world's third largest economy, according to analysts. For three years it has aggressively printed money although that has not spurred any inflation amid weak exports and nervous Japanese consumers refusing to further open their wallets.
“I think Kuroda has more or less admitted that monetary policy cannot do the heavy lifting in Abenomics anymore,” said Harris of Teneo Intelligence.