Yen hits 7‑month low as Japan signals possible market intervention
The yen weakened on Monday to its lowest level since last October, falling to 151.97 per dollar. This is the result of the Bank of Japan maintaining a loose monetary policy despite accelerating inflation, with the country's authorities suggesting the possibility of intervention.
In response to the sharp decline in the value of the Japanese currency, the authorities announced an urgent meeting of the Ministry of Finance, the central bank, and the financial supervisory authority.
Finance Minister Shunichi Suzuki warned that Japan could take "decisive steps" against further depreciation of the yen.
As reported by Reuters, during Monday's session, the USD/JPY rate reached 151.97, marking the highest level since November 9, 2022. This reflects the ongoing weakness of the Japanese currency, which has lost nearly 7% of its value against the American currency since the start of the year, making it the weakest currency among developed economies in that period.
The yen at its weakest in seven months: Bank of Japan's reaction
The main reason for the dropping value of the Japanese currency is the Bank of Japan's (BoJ) continuing loose monetary policy. The main interest rate remains at -0.1%, and the central bank is persisting with a program to control the yield curve of government bonds. Meanwhile, the American Federal Reserve is hiking interest rates, and yields on American treasury bonds are on the rise.
Possible intervention
In response to the rapid depreciation of the yen, Japanese authorities have signaled the potential for intervention in the currency market. In a statement following Friday's BoJ meeting, it was noted that they would closely monitor changes in the yen's exchange rate. Finance Minister Shunichi Suzuki described the excessive fluctuations of the Japanese currency as "undesirable".
On Monday, Suzuki took his warnings a step further, stating that Japan could take "decisive steps" in response to excessive yen weakness. "We are now watching market movements with great caution. If excessive movements occur, we will take decisive steps, we do not rule out any options," the finance minister told reporters, as quoted by Reuters.
Weak yen poses threats to Asian currencies and drives inflation in Japan
Market analysts believe that a weakening yen could adversely impact other Asian currencies. Analysts at National Australia Bank suggest that the recent sharp decline of the Chinese yuan may have been a strategic move to protect the competitiveness of China's exports. "It's not just about the yen. It has a domino effect, posing a downside risk for other currencies," evaluates Rodrigo Catril from NAB.
The weak Japanese currency also contributes to inflation in Japan by increasing the cost of imported raw materials and goods. This not only reduces the purchasing power of households but also inflates the cost of doing business for companies.
