The yen briefly fell to ¥135 against the US dollar for the first time since February 2002 on Monday, as the currency’s plunge drew increasing scrutiny from Japanese authorities wary of its rapid weakening.
After a week of breaking 20-year lows, the yen had spent the weekend at about ¥134.40 against the dollar, teetering on the ¥135 line and edging closer to a 24-year low.
But in the opening hours of Tokyo trading, the yen fell further as traders bet that the Bank of Japan will choose to remain the only major central bank with an ultra-loose monetary policy, with its counterparts in the US and Europe entering an interest-rate raising cycle.
On Friday, the Bank of Japan, Ministry of Finance and Financial Services Agency issued a rare joint statement expressing concern about the yen’s steep slide against the dollar.
The statement briefly bolstered the Japanese currency, but it gave up most of its gains by Friday afternoon, setting the stage for further falls on Monday.
Currency analysts had warned last week that the yen was likely to remain highly volatile against the dollar ahead of the BoJ’s monetary policy meeting on Thursday and Friday. The focus is now on whether BoJ governor Haruhiko Kuroda will signal any shift in his position that a weaker yen is generally positive for the Japanese economy.
Shortly after the yen fall, yields on US Treasury two-year and 10-year debt rose by 9 and 3.6 basis points, respectively, reflecting expectations of interest rate increases by the US Federal Reserve. The two-year Treasury yield stood at 3.159 per cent, the highest since the beginning of the financial crisis in late 2007.
The Nikkei 225 Japanese stock index, which typically rises when the yen falls because a weaker currency is seen as positive for exporters, fell 2.9 per cent on concern over the broader impact on the economy.
Some analysts have begun to argue that the weakening yen, despite its long reputation for boosting the profits of large parts of corporate Japan, was actually harming the economy.
The Daiwa Institute of Research said that if the yen decreased 10 per cent from 116.2 yen against the dollar, which was near the middle of the range it traded in during the January-to-March quarter, real GDP for the fiscal year through March 2023 would decrease 0.05 per cent. The economic hit would come from the increase in import prices offsetting the positive effects of more competitive exports due to the weaker currency.
Yunosuke Ikeda, chief strategist at Nomura, noted that in a speech last week, Kuroda indicated that because of his wish to encourage higher wages, he had no intention of changing the BOJ’s accommodative monetary stance.
“The increasing shift towards overseas production in the manufacturing sector has reduced the ability of yen depreciation to lead to “good” inflation via economic expansion,” said Ikeda.
