most direct warning yet from Japan’s Finance Minister about the yen’s fall and the economic fallout.
Tokyo Reuters : This is the most direct warning yet against the yen’s recent fall against the dollar, said Japanese Finance Minister Shunichi Suzuki on Tuesday. The weakening yen is hurting the economy more than it is helping, he said, making this the clearest warning yet.
Imported inflation in Japan has gotten worse because the value of the Japanese yen has dropped. This has led to a rise in global commodity prices and a rise in supply problems, which have gotten worse in the wake of the Ukraine conflict.
Suzuki told parliament that “stability is important, and sudden changes in the value of the Japanese yen are not good.” As the Japanese yen fell to new 20-year lows against the dollar, Suzuki said the same thing.
Under the current circumstances, Suzuki said, “a weak yen has its advantages and disadvantages.” The weak yen makes imported goods more expensive, which hurts consumers and businesses that can’t pass on the costs. “A weak yen has its advantages and disadvantages,” Suzuki said.
The minister’s comments were the clearest sign yet that Japanese officials were worried about the yen’s continued decline. They were all together.
Suzuki didn’t say how the government and the Bank of Japan should respond to the weakening of the yen, or if they should intervene in the market.
Before he went to Washington this week to meet with financial leaders from the Group of 20 (G20) major economies, he said that he didn’t think it was a good idea. As part of the many talks, the minister will also meet with Janet Yellen, who is in charge of the US Treasury.
Suzuki said he would keep to the G7 agreement on currencies and work closely with the US and other countries’ currency authorities to “respond appropriately” to changes in the value of the dollar and other currencies.
The currency market didn’t care what the minister said. The yen fell to 127.80 per dollar, its lowest level since May 2002. The yen has lost about 10% against the dollar this year.
Investors say that verbal warnings won’t have much of an impact because the yen’s weakness is based on real-world factors, like the fact that the Federal Reserve is likely to start raising interest rates quickly and the Bank of Japan isn’t going to stop its powerful monetary easing plan.
Because the G7 believes that currency rates are set by the market, they say they will closely consult with each other before taking any steps in the foreign exchange market. The group also says that too much volatility and disorderly movements can have a negative effect on the economy and the financial system.
A weaker yen could have a big impact on the economy, so Japanese officials were very careful about how it might affect the economy, Suzuki said.
A poll of 5,400 Japanese businesses by private credit research firm Tokyo Shoko Research found that about 40% of them had a negative effect from a weak yen, with dollar/yen rates as low as 110 yen among listed manufacturers.
When the dollar was around 113 yen in December, only about 30% of Japanese businesses said that a weak yen was bad. This shows how much the rapid depreciation since the start of the year has hurt businesses.
