Japan’s currency, the yen, has fallen to a 34-year low against the US dollar, reaching 160.17 per dollar. This is its lowest level since April 1990 and has been ongoing since early 2021 due to the Bank of Japan (BOJ) keeping interest rates very low while other central banks such as the US Federal Reserve raise borrowing costs. Despite the BOJ raising interest rates last month for the first time in 17 years, the yen’s decline continued as expectations of a US rate cut eased against above-target inflation.
The weakening of the yen has benefited Japanese exporters by increasing their profits but negatively affected household budgets by increasing the prices of imported goods. Japanese officials have reiterated their willingness to intervene in the exchange rate to prevent sharp moves but have so far refrained from doing so during the currency’s year-long slide. The BOJ kept the benchmark rate at 0-0.1 percent on Friday.
However, there are speculations that Japanese authorities may intervene to support the currency for the first time since late 2022 if its decline continues at this pace or if it poses significant risks to Japan’s economy and financial stability. BOJ Governor Kazuo Ueda mentioned at a press conference that exchange rate volatility would only affect monetary policy if it significantly affected the economy and could not be ignored. He further stated that policy adjustments could be considered if yen movements had a significant impact on economic conditions and prices that could not be ignored.
In conclusion, Japan’s currency has been falling steadily against other currencies due to various factors such as low interest rates and inflation concerns globally. While this decline has benefited some sectors such as exporters, it has negatively affected others such as households with tight budgets. However, there are concerns that if this trend continues unchecked, it could pose significant risks to Japan’s economy and financial stability.