In recent years, the Japanese currency has been facing a decline against the US dollar. This drop in value has reached its lowest point in over 30 years, with the yen currently trading at 160.17 per dollar. As a result of this weakening currency, there are speculations that Japanese authorities might intervene to support it for the first time since late 2022.
The decline in the yen can be attributed to a number of factors. One major factor is the low interest rates maintained by the Bank of Japan (BOJ) compared to other central banks like the US Federal Reserve, which have been raising borrowing costs. Despite an increase in interest rates by BOJ last month for the first time in 17 years, this trend continued as expectations for US interest rate cuts decreased due to above-target inflation.
The weakening yen has had both positive and negative impacts on various sectors of Japan’s economy. On one hand, it has boosted profits for Japanese exporters and put more money in tourists’ pockets when visiting Japan. However, it has also led to an increase in prices of imported goods and negatively affected household budgets.
Despite officials reiterating their readiness to intervene in exchange rates to prevent sharp movements, they have refrained from doing so during the year-long slide of the currency. On Friday, BOJ Governor Kazuo Ueda stated that exchange-rate volatility would only affect monetary policy if it significantly impacted the economy or prices that couldn’t be ignored. The central bank maintained its benchmark rate at 0-0.1 percent on Friday.
In summary, while there is no indication yet if Japanese authorities will intervene in supporting their currency against other countries, including their largest trading partner United States dollars, their readiness remains high to do so should any significant impact occur on their economy or prices that can’t be ignored.