On Thursday, the Japanese government announced that it was prepared to intervene in the exchange-rate market following the yen has dropped to lowest against the US dollar. Concerned over swift, one-sided currency changes and their possible effects on the economy, Finance Minister Shunichi Suzuki highlighted the necessity of stable exchange rates.
Yoshimasa Hayashi, the Chief Cabinet Secretary, underlined that Tokyo will respond “appropriately” to excessive currency movements. However, he did not state at what yen level or what kind of intervention Tokypo may undertake. As of Thursday, the yen was close to its recent low of 160.88, with the value of the yen at 160.52 per dollar.
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Due to differences in interest rates between Japan and the US, the yen has lost 12% of its value against the dollar this year, placing more pressure on Japanese authorities to initiate action. The currency’s decline below the crucial 160-to-the-dollar barrier has caused the market to be concerned about potential yen-buying operations.
Masafumi Yamamoto, chief currency strategist at Mizuho Securities, pointed out that authorities are probably worried about the yen’s declining pace and magnitude, speculating that the yen could fall below 162 if nothing is done. However, analysts are cautious and express doubts about the effectiveness of verbal guarantees or even intervention to stop the yen’s depreciation, which is mostly caused by uncertainties about rate reduction by the US Federal Reserve.
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The Bank of Japan (BOJ) has kept its short-term policy goal unchanged but has suggested a potential rate hike. The BOJ may feel pressured by the weakening yen to raise interest rates in conjunction with its impending quantitative tightening strategy during its expected July 30-31 policy meeting.
Yoshitaka Shindo, minister of economy, emphasized the potential impact of rising import costs on inflation as a result of a weaker yen. This concern was echoed by BOJ Deputy Governor Shinichi Uchida, who said that the bank will closely monitor currency swings while directing monetary policy to mitigate any potential inflationary effects.
