Yen Plunges Below 150 Against Dollar, Raising Concerns for Japan’s Economy

Japan’s top officials have raised alarms as the yen experienced a sharp decline against the dollar, hitting its lowest level in three months and falling below 150 on Tuesday. As of the time of writing, the USD/JPY forex pair traded at 150.59, recovering mildly from yesterday’s slump.

This significant drop comes in the wake of data revealing higher-than-expected U.S. inflation figures for January. The prospect of the Federal Reserve maintaining steady interest rates in March, combined with the Bank of Japan’s persistent negative rates, has further intensified concerns about the yen’s volatility and its potential impact on Japan’s export-oriented economy.

Finance Minister Shunichi Suzuki and Vice Finance Minister Masato Kanda have both voiced apprehension over the swift and speculative movements witnessed in the currency market. They hinted at the likelihood of intervention to mitigate the yen’s weakness.

“Rapid moves are undesirable for the economy,” stated Suzuki, emphasizing his vigilant monitoring of the market. However, he refrained from confirming any intervention plans when pressed by reporters.

Kanda, responsible for currency affairs, emphasized Japan’s readiness to take necessary actions regarding foreign exchange if deemed necessary. He underscored that the yen’s nearly 10 yen decline in just a month was detrimental to the economy, drawing parallels to preparedness for natural disasters.

No Intervention for the Yen: Kanda Asserts

Historically, Japan has intervened in the currency market to counter the yen’s appreciation, which diminishes export competitiveness and erodes corporate profits. Notably, the last intervention occurred in 2022, when Japan sold dollars and purchased yen amidst the currency’s 32-year lows near 152 to the dollar.

However, since then, Japan has refrained from intervening. Kanda dismissed claims of a specific yen target, stressing that authorities consider various factors, including the velocity and deviation of currency movements from fundamentals.

Market expectations regarding future monetary policies in the U.S. and Japan have also influenced the yen’s fluctuations. While the Federal Reserve is anticipated to halt rate cuts amid inflationary signals, the Bank of Japan faces mounting pressure to either further ease policies or exit its negative rate strategy.

The yen’s trajectory continues to be closely monitored by investors and policymakers alike, as its movements hold significant implications for global trade and economic stability.