Japan warns of ‘one-sided’ market moves as Yen tumbles to 153 per dollar, lowest since July; cites concerns amid Fed-driven dollar strength

The Japanese yen has plummeted to its lowest level since July, touching 153 against the US dollar, owing primarily to a strong dollar impacted by the Fed’s recent monetary policy stance. The yen’s decline has concerned Japanese officials, who are closely watching the situation and emphasizing the necessity of market stability.

Why is Yen depreciating?

As the US dollar stands strong due to sustained economic resilience, it has resulted in a divergence between Japan’s monetary policies and those of other major nations, including the United States.
There’s also the US presidential election in November. Many believe that if former President Donald Trump is elected, his expansionary fiscal plans will increase the national deficit, result in inflation, and push up interest rates in the United States.
Markets also believe that the Bank of Japan’s extremely lax monetary policy and Governor Kazuo Ueda’s indications that he will not be in a rush to raise interest rates from their current near-zero levels can be perceived to be factors in the yen’s decline.

Japan’s response

Japan’s Finance Ministry has warned against what it calls “one-sided” currency market movements in reaction to the yen’s slide. These fluctuations, which are marked by abrupt and uneven changes in exchange rates, may endanger the stability of the economy. Japanese authorities stressed the government’s vigilance, including Finance Minister Shunichi Suzuki.
“It’s important for currency rates to move stably. We are watching exchange-rate moves with heightened vigilance, including for any speculative moves,” Kato informed the reporters. Although such actions are often reserved for extreme circumstances, this might involve direct currency market intervention to stabilize the yen.
When comparable circumstances arose in 2022, Japan attempted to stabilize the value of the yen by intervening in the currency markets. Intervention, however, can be complicated and may affect global markets more broadly, necessitating international cooperation.

Read More: BOJ’s uncertain response to Fed rate cut; Yen hits 5 month low

Impact on Japan’s economy

While a weaker yen could potentially aid Japanese exporters in the near future by making their products more affordable abroad, thereby increasing the earnings of businesses that focus on exports; cost of imports can rise substantially.
Since Japan depends so largely on imported energy supplies like natural gas and oil, the country is susceptible to increased import costs when the value of the yen declines. Customers may see price increases as a result, which might reduce domestic consumption and raise inflationary pressures.