Japan’s Concerns Over Weakening Yen

Finance Minister Shunichi Suzuki Expresses Worries

TOKYO (Reuters): Japan’s Finance Minister Shunichi Suzuki voiced concerns about the negative impacts of the weakening yen on Friday. This fresh warning was directed at speculators, as the currency continued to drop following the Bank of Japan’s decision to maintain interest rates.

BOJ Holds Rates, Yen Slides

The Bank of Japan’s decision to keep policy settings unchanged caused the yen to fall to below 156 levels against the dollar, marking its lowest point since 1990. This volatility in the currency prompted Suzuki to reiterate his caution against speculative activities involving the yen.

Effects of Weak Yen

Suzuki highlighted both the positive and negative effects of a weak yen on the economy, emphasizing his current concern about the adverse impacts. While a depreciated yen benefits exports, it also raises living costs for households by increasing import prices.

Government’s Priorities

Addressing the surge in prices, Suzuki stressed that combating inflation remains a key priority for the government. As the currency continued to weaken against the dollar, concerns grew over the widening U.S.-Japan interest rate differentials driving this trend.

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Challenges for Japanese Policymakers

The continuous decline of the yen against the dollar has posed challenges for Japanese policymakers. The Finance Minister refrained from commenting on remarks made by U.S. Treasury Secretary Janet Yellen regarding currency interventions, emphasizing the influence of interest rate differentials on foreign exchange levels.

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Impact on Currency Markets

The yen’s prolonged weakness has surpassed certain critical levels against the dollar, indicating limited options for Tokyo to reverse this trend. With interest rates and market momentum favoring further depreciation, interventions in the current scenario may prove futile, according to experts.

Japan’s Last Currency Intervention

In 2022, Japan’s attempt to intervene in the currency markets by spending approximately $60 billion to defend the yen yielded limited results. Traders now perceive additional interventions as ineffective, given the prevailing market conditions.

“Currency intervention in a scenario where we’re seeing upward pressure on U.S. Treasury yields is going to be a futile exercise,” commented Rodrigo Catril, a senior forex strategist at National Australia Bank.