The Japanese currency, the yen, has recently plunged to its lowest level against the United States dollar in 34 years, reaching 160.17 per dollar, the lowest since April 1990. This has raised concerns that Japanese authorities may need to step in to stabilize the currency, a move that has not been seen since late 2022.
The yen’s decline can be attributed to the Bank of Japan’s decision to keep interest rates at ultra-low levels, while other central banks, including the US Federal Reserve, have raised borrowing costs. Despite the BOJ’s recent increase in interest rates – the first in 17 years – the yen’s downward trend has persisted, particularly as expectations of rate cuts in the US have diminished due to higher-than-expected inflation.
While a weaker yen has benefited Japanese exporters and boosted tourism revenue, it has also led to higher prices for imported goods, putting pressure on household budgets. Japanese officials have indicated their readiness to intervene in the foreign exchange market to prevent excessive fluctuations in the yen’s value, although they have refrained from doing so during its year-long decline.
Last Friday, the Bank of Japan maintained its benchmark interest rate at 0-0.1 percent. BOJ Governor Kazuo Ueda emphasized that exchange-rate volatility would only impact monetary policy if it significantly affected the economy and prices. He noted that if the yen’s movements had a substantial impact, adjustments to policy may be considered in response.