TOKYO Following the yen’s drop to a new 24-year low, Japan is keeping a “heightened sense of urgency” on currency movements, according to a top finance ministry official on Thursday.
“Recently, currency market volatility has increased,” the official told reporters. “Sudden exchange-rate changes are not desired.”
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The dollar hit a high of 139.69 yen on Thursday, which was the highest level in 24 years. This was because investors were preparing for the U.S. Federal Reserve to raise interest rates quickly.
Once praised for helping to increase exports, the weak yen is now a worry for the Japanese government because it drives up the price of imported fuel and raw materials.
The yen is losing value because the difference in interest rates between Japan and the U.S. is getting bigger because the Bank of Japan keeps its monetary policy very loose while the Federal Reserve raises rates.
“By driving up import prices, the weak yen may hurt corporate profitability and consumption,” says Nobuyasu Atago, chief economist at Ichiboshi Securities.
Further currency depreciation might jeopardise Japan’s recovery from the epidemic, he said.
Due to the yen’s rebound in July, the market is not overstretched, and traders might ride the yen farther lower.
If the dollar-yen exchange rate goes above 140, which is a psychologically important number, it could put political pressure on Prime Minister Fumio Kishida to spend more money to help the economy deal with the effects of higher living costs.
Japanese policymakers have few options to manage the yen’s decline other than to terrify markets.
Before acting in the currency market to bolster the yen, Tokyo would require G7 consent. Washington’s aversion to currency intervention makes this difficult.
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Economists say that the U.S. has no reason to keep the value of its currency from going up, which makes inflation less likely.
Due to low inflation and a slow economy, the Bank of Japan has no reason to raise interest rates.
I don’t think the BOJ will change monetary policy because of a weaker yen.
First, it doesn’t cover exchange-rate policy. ITOCHU Research Institute economist Atsushi Takeda said so.
