Finance Minister Shunichi Suzuki expressed his concerns about the negative effects of the weak yen on Japan's economy. While acknowledging that a weak yen can have both positive and negative impacts, Suzuki emphasized that he is currently more concerned about the negative effects. The weakening yen has led to an increase in import prices, resulting in a higher cost of living for households in Japan.
Suzuki highlighted that combating surging prices is a key policy priority for the government. As the yen continues to slide to lows last seen more than three decades ago, Japanese policymakers are closely monitoring the currency moves and are prepared to take action if necessary. While a weak yen can boost exports, it also poses challenges for the overall economy.
The yen has reached a 34-year low against a stronger dollar, driven by significant interest rate differentials between the U.S. and Japan. This yield-induced downturn in the yen has further accelerated due to expectations that the Bank of Japan will maintain its near-zero rates and the U.S. Federal Reserve will delay its rate-cutting cycle.
The yen's depreciation has raised concerns about whether Tokyo will intervene in the markets to reverse the currency's slide. Traders believe that with prevailing interest rates and market momentum working against the yen, there are limited options for the Japanese government to stabilize the currency. Despite calls for intervention, Suzuki refrained from commenting on the U.S. Treasury Secretary's remarks regarding other countries' interventions in the currency markets.
As the Bank of Japan is expected to maintain its current policy settings, market participants are keen to observe any signals from Governor Kazuo Ueda on the potential impact of the weak yen on the timing of the next rate hike. While foreign exchange levels are influenced by various factors, including economic indicators and price trends, interest rate differentials play a significant role in determining exchange rates.
Japan's last intervention in the currency market took place in 2022 when the government spent approximately $60 billion to defend the yen. However, with the current market dynamics favoring a weaker yen, interventions may have limited effectiveness. The depreciation of the yen against the dollar by 9.4% this year and a cumulative 33% over the past three years highlight the challenges faced by Japanese policymakers in maintaining exchange rate stability.
The ongoing depreciation of the yen poses both opportunities and challenges for Japan's economy. While a weak yen can support export growth, it also leads to higher import prices and inflationary pressures. Japanese authorities will need to carefully balance these competing interests to ensure economic stability and growth in the face of volatile currency markets.