Japanese Finance Minister Shunichi Suzuki announced that Japan is closely watching currency movements and is ready to take all necessary steps.
They’re also prepared to do whatever’s needed to stop the Japanese currency from losing too much value against the U.S. dollar as the yen hit its lowest in 34 years.
On Thursday, the yen fell to 155.74 against the U.S. dollar in Tokyo, breaking through the 155 mark and reaching its lowest level in 34 years.
Japanese economist Hideo Kumano explained that the yen’s rapid depreciation is mainly because of the widening interest rate gap between the yen and the U.S. dollar
This situation, however, is set to lead to greater economic uncertainty in Japan.
“In Japan, low interest rates are expected to continue for now, putting pressure on the yen’s value to drop. The yen’s depreciation is also due to the strong U.S. dollar. Previously, the U.S. Federal Reserve Chair Powell said that the Fed is set to cut U.S. interest rates three times this year. However, there are market concerns now that there might be fewer cuts, or even none at all this year. The strong U.S. dollar is causing a lot of money to flow into the country. The ongoing appreciation of the U.S. dollar has also led to a decrease in the value of the yen,” Hideo Kumano, Chief economist, Dai-ichi Life Research Institute said.
Kumano cautioned that the yen’s rapid depreciation could pose challenges for Japanese import and export firms.
Given the heavy reliance of Japan on imports for essentials like energy, minerals and food, higher import costs are likely to increase the living expenses for its citizens.
The yen’s significant depreciation against the U.S. dollar in the short term adds more uncertainty to the Japanese economy.
“For Japanese import and export businesses, the ongoing trend of yen depreciation seems endless. This will result in a continuous rise in import prices, posing significant challenges. If the yen continues to depreciate, Japanese assets may be increasingly shifted overseas.”
“Although the Japanese government wants to halt the yen’s further depreciation in the foreign exchange market, and claims it can control currency fluctuations, the actual flow of significant private funds is influenced by the monetary policies of both the U.S. and Japan. As a result, it has become challenging to prevent the yen from depreciating further and the U.S. dollar from appreciating,” he added.
