The yen fell Wednesday to its lowest level against the dollar in 20 years, weighed in particular by the widening gap between Japan’s still ultra-accommodative monetary policy and the Fed’s tightening in the face of US inflation.
One dollar was trading for 126.05 yen around 10:15 GMT after quickly breaking the 125.86 yen mark a few hours earlier, the first since 2002.
The yen has been declining against the dollar since early 2021, when US Treasury yields began to rise sharply amid a sharp rebound in US growth and the start of accelerating inflation in the country.
After losing 10% of its value against the greenback last year, the yen has again fallen by almost 9% since the beginning of 2022.
Its depreciation has further increased in recent weeks, amid the prospect of an even more aggressive monetary tightening by the US Federal Reserve (Fed) than initially expected to counteract inflation at a 40-year high in the United States.
Against the tide of the other main central banks, the Bank of Japan (BoJ) is maintaining its ultra-accommodative monetary policy, considering that the macroeconomic conditions to tighten it are not yet met in Japan.
BoJ Governor Haruhiko Kuroda also reaffirmed this course on Wednesday, which appears to have caused the yen’s new bout of weakness.
– An ineffective “safe haven” effect –
The Japanese economy is still in the balance after the initial shock caused by the Covid pandemic in 2020, but inflation is much more moderate there than elsewhere (just 0.6% excluding fresh produce in February), although it is now also accelerating due to the surge in energy prices.
The yen has traditionally been a “safe haven” in the event of severe market turmoil. Because despite its abysmal public debt (more than 260% of GDP according to the IMF), Japan appears to be a country with strong shoulders: for three decades it has been the world’s leading creditor, with net wealth abroad weighing 3.6 trillions of dollars at the end of 2021, according to data from the Japanese Ministry of Finance.
However, this status has not worked since the start of the Russian-Ukrainian conflict because the surge in energy prices is widening the trade deficit of Japan, a major oil importer.
This also sinks the Japanese currency, because “oil importers have to pay in dollars, and therefore have to buy dollars,” recalls AFP Masamichi Adachi, chief economist at UBS Securities in Japan.
But the BoJ continues to view the yen’s weakness as an overall positive for the Japanese economy, particularly by improving the country’s export price competitiveness and increasing corporate profits when converting their foreign earnings into yen.
This dogma, to which the government also adheres, has however begun to be debated in Japan. Because the sharp decline in the yen combined with the surge in energy prices is weakening small and medium-sized enterprises focused on the domestic market, as well as the purchasing power of households, whose consumption is already at half-mast.
– Sudden “very problematic” movements –
Japanese politicians are multiplying worried statements about the rapid decline of the national currency. “Exchange rate stability is important and we see sudden moves as undesirable,” government spokesman Hirokazu Matsuno repeated Wednesday, after similar remarks made the day before by Prime Minister Fumio Kishida.
Japanese Finance Minister Shunichi Suzuki clarified the point by saying Wednesday that these fluctuations were “very problematic”.
However, according to economists, direct intervention by Tokyo with its foreign exchange reserves in support of the yen seems difficult.
The US authorities “view the appreciation of the dollar favorably, because their problem is high inflation,” Adachi stresses. This excludes a coordinated US-Japanese intervention, which would have a greater impact than Tokyo’s unilateral action.
Furthermore, “it would be strange” if the Japanese government intervened by buying the yen while the BoJ keeps its ultra-accommodative policy unchanged, also noted Tohru Sasaki of JPMorgan Chase, questioned by the AFP.
etb / mlx / spi