Yen hits new 24-year low as Bank of Japan maintains loose policy

Japan’s national flag flutters in the wind over a section of the Bank of Japan (BoJ) headquarters buildings in Tokyo on September 14, 2022. – The Bank of Japan on September 14 conducted an operation often seen as a prelude to currency intervention, local media reported, as The yen continues to collapse against the strong dollar. (Photo by Richard A. Brooks/AFP)

by Sarah Hussein
France media agency

Tokyo, Japan (AFP) – The yen fell to a new 24-year low against the dollar on Thursday, with the dollar rising to nearly 146 after the Bank of Japan left its ultra-loose monetary policy unchanged, a day after the Federal Reserve’s rise. He raised interest rates and warned of more to come.

The yen has taken a hit in recent months as the Bank of Japan sticks to a decade-old policy aimed at achieving sustainable inflation of 2% – a benchmark seen as key to the turbocharging of the world’s third-largest economy.

It has bucked the trend of other major economies, with central banks – especially the US Federal Reserve – raising interest rates to tackle inflation.

Prices in Japan are on the rise, with the CPI in August at 2.8 percent, the highest since 2014, but the central bank sees the increases as temporary.

It said in a statement that it would leave its current policy in place “with a view to achieving the price stability target of 2 percent, for as long as necessary.”

“It will continue to expand the monetary base until the annual rate of increase in the observed CPI exceeds 2% and remains above the target in a stable manner.”

The bank said it sees the Japanese economy on a recovery path, “with the impact of Covid-19 and supply-side constraints waning,” although it cautioned about the uncertainty of higher commodity prices linked to the war in Ukraine.

The rapid depreciation of the yen has caused concern in Japan, which has led to an increase in the cost of imported goods for consumers and businesses.

Government officials have insisted that they are monitoring the situation and will take appropriate action if necessary, without giving details of what it will be or when it might be implemented.

– ‘The Bank of Japan has no choice’ –
Earlier this month, the central bank reportedly conducted an “interest rate check”, a process often seen as a precursor to currency intervention.

The move came shortly after the yen was close to breaching the psychologically important 145 barrier, and reports of the operation temporarily bolstered Japanese unity.

It is down from around 115 in March, and the Bank of Japan reiterated on Thursday that “it is necessary to pay due attention to developments in the foreign exchange and financial markets and their impact on Japanese economic activity and prices.”

Local media reported that Masato Kanda, Japan’s top currency diplomat, told reporters hours after the bank’s decision that the government was “on standby” to intervene when appropriate.

But he again failed to explain the reason for the intervention, and his comments did little to support the yen, which continued to swing near the 145 level.

He also confirmed that there had been no intervention so far although the dollar fell briefly to around 143.50 yen after breaking the 145 mark. The dollar rose again to 145.90 yen.

Hours after the BoJ policy announcement, Governor Haruhiko Kuroda, whose term ends next year, defended sticking with the long-running program.

“We have not and will not target certain levels of foreign exchange,” he told reporters.

“It is desirable that foreign exchange rates reflect economic and financial fundamentals, but the recent rapid depreciation of the yen is not and is negative for the economy,” he added.

But he noted that the dollar rose against most of the major currencies.

There is little expectation that the Bank of Japan will change course, wrote Shigeto Nagai, head of Japan’s economy at Oxford Economics, in a note.

“Although foreign investors may continue to challenge yen and (Japanese government bond) yields until the Fed rate-tightening cycle has peaked, we believe the BoJ has no choice but to stick to…the current policy.”

© AFP

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