Fri, Oct 21, 2022 page10

• Yen hits lowest level since 1990

  ‘GAME OF CHICKEN’: The yen would continue a slide as long as the monetary policies of the US and Japan differ, as Fed rate hikes are expected to gain pace, analysts said

  • AFP, Tokyo
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  The falling yen yesterday hit ￥150 per US dollar for the first time since 1990, driven down by the contrast between Japanese monetary easing and aggressive US interest rate hikes.

  The currency plunged from February levels of around ￥115 as the Bank of Japan sticks to its ultra-loose policies, designed to encourage sustainable growth in the world’s third-largest economy.

  At the same time, the US Federal Reserve has sharply increased borrowing costs in an attempt to quell sky-high inflation fueled by factors including the war in Ukraine.

  

  A Japanese yen banknote is pictured on June 1, 2017.

  Photo: Reuters

  The yen sank to as low as ￥150.08 per US dollar before easing back soon after.

  Analysts said that the yen is likely to continue its slide as long as the two countries’ monetary policies differ, with more dramatic Fed interest-rate hikes likely as US prices increase faster than expected.

  Speculation is growing that Japan could prop up its currency again after spending ￥2.8 trillion (US$18.67 billion) in September on an intervention that involves selling US dollars and buying yen.

  Japanese Minister of Finance Shunichi Suzuki yesterday called the volatile fluctuations in foreign exchange markets “absolutely intolerable,” adding that authorities would take an “appropriate response” to promote stability.

  Suzuki earlier this week declined to confirm whether any unannounced “stealth” interventions had recently taken place.

  “The Japanese government is engaged in a game of chicken with the market” on the yen, Rabobank Groep NV FX strategy head Jane Foley said.

  “There isn’t a limit,” she said. “Interest rate differentials suggest there is a strong drag on the dollar-to-yen to go higher.”

  A weaker yen inflates profits for Japanese exporters, but can also weigh on the country’s trade balance.

  Japan is heavily reliant on imported energy along with much of its food.

  The country posted a trade deficit for the 14th month in a row, Japanese government data showed yesterday, with exports and imports ballooning to record highs.

  Imports totaled ￥10.9 trillion last month, up nearly 46 percent from the same month a year earlier on the back of rising oil and gas costs, while exports totaled ￥8.8 trillion, with the strongest growth in vehicles and steel. It was the 20th straight month of year-on-year monthly gains.

  The intervention in September “managed to stabilize the dollar-to-yen rate for a while, because traders are frightened of intervention” that could cause them to lose money, Foley said.

  However, the effect of such interventions would be limited if the gap between Japanese and US monetary policy remains, she added.

  “It’s very unlikely that anything is going to change from policy, at least until the spring,” when key wage negotiations take place in Japan, she said.

  Japan scrapped its COVID-19 border restrictions and reopened to tourists this month, with many visitors finding shopping, eating out and domestic travel a bargain given the weak yen and years of stubbornly low inflation.

  Prices are now rising in Japan, although at a slower pace than in other major economies, with inflation registering at 2.8 percent in August.

  That is above the Bank of Japan’s target for sustained 2 percent inflation, but it views the price increases as temporary and therefore has kept its easy-money policies in place.

  Additional reporting by AP
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