The yen yesterday hit its lowest level against the US dollar in two decades, extending recent falls as the gap widens between Japan’s ultra-loose monetary policy and US Federal Reserve’s tightening.
Despite being traditionally considered a safe-haven currency, uncertainty fueled by Russia’s war in Ukraine has not caused the yen to strengthen.
Instead, moves by the Fed toward a more aggressive policy and the shock of rising oil prices in Japan — a major importer of fossil fuels — have pushed the currency lower, analysts said.
Photo: AFP
One US dollar bought ￥126 at about 6:30am GMT yesterday, the lowest rate since 2002.
“The Japanese yen has been one of the weakest currencies anywhere in the world this year,” Dutch banking group ING Groep NV said in a recent commentary.
“Driving the rally has been the perfect storm of a hawkish Federal Reserve, a dovish Bank of Japan and Japan’s negative terms of trade shock as a major fossil fuel importer,” it said.
The yen had already lost 10 percent of its value against the US dollar last year after four years of steady strengthening.
The Fed has taken a hawkish tone as it embarks on an aggressive tightening path, pushing up US Treasury yields, which have strengthened the US dollar against the yen.
The US consumer price index surged 8.5 percent last month compared with a year earlier, the biggest jump since December 1981.
Inflation climbed 1.2 percent over February’s level, US government data released on Tuesday showed.
The potency of the ongoing price jumps bolstered the case that the Fed would take aggressive action at its policy meeting next month, likely raising the key lending rate by half a percentage point as opposed to last month’s quarter-point increase.
Earlier yesterday, Bank of Japan (BOJ) Governor Haruhiko Kuroda said the bank would maintain its monetary easing policies in a bid to reach its long-held 2 percent inflation target.
“Given the economy and price situation, the Bank of Japan will seek to realize its two percent inflation target ... by resiliently continuing its current powerful monetary easing,” he said.
UBS Group AG said a weaker yen would likely hit Japanese households’ purchasing power and domestic-oriented small businesses, which will face higher import costs.
“The government is offering fiscal supports and most likely will expand the supports. We think the JPY purchase intervention is possible if the pace of depreciation is regarded as too fast,” UBS said in a note.
“We cannot completely deny the possibility of the BOJ adjusting policy to cope with public criticism” on the yen’s depreciation, UBS said, adding that the bank, under Kuroda, has been quite flexible and pragmatic in the past.”
Japanese Prime Minister Fumio Kishida did not comment directly on the yen’s fall when asked on Tuesday, but emphasized the importance of stability in foreign exchange rates.
“I will refrain from commenting on the level of exchange rates, but their stability is important and I think rapid fluctuations are undesirable,” he said.
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