Bank of Japan’s unexpected move to help soften a rising energy crisis

The Bank of Japan’s (BOJ’s) unexpected move will help to soften the country’s rising energy crisis by reducing spending on foreign fuel.

Within the previous BOJ’s meeting, Governor Haruhiko Kuroda decided to raise the bank’s yield cap on 10-year government bonds. The central bank’s actions caused a one-day surge in the yen, which hasn’t been recorded in more than two decades. The national currency’s strengthening will support Japan’s energy and gas distribution companies. The currency’s devaluation, a global energy crisis, and rising fuel prices have previously had a negative impact on the energy situation in the country.

Due to the yen’s weakening, Japan's energy import costs increased. The country faced difficulties with accumulating needed fuel reserves and preventing electricity shortages over several years. Prices of liquefied natural gas (LNG) have also risen significantly for the past two years. In yen terms, this increase was four times higher than levels recorded two years ago, while in U.S. dollars, it was only three times higher.

Hiroshi Hashimoto, a Tokyo-based analyst at the Institute of Energy Economics in Japan, outlined that the rapid national currency’s devaluation negatively affected Japanese LNG procurement. The recent central bank’s decision, in turn, should bring a positive change in plans for foreign fuel procurement.