Japan said on November 1, 2023 that it is on standby to deal with “one-sided” currency moves as the yen tumbles. The yen has depreciated sharply against the dollar in recent months, reaching a 32-year low in October.
The Japanese government and the Bank of Japan have intervened in the currency market to support the yen on several occasions in recent months, but their efforts have had limited success. The yen’s weakness is due to a number of factors, including:
The widening interest rate differential between Japan and the US:
The US Federal Reserve is raising interest rates aggressively in an effort to combat inflation. The Bank of Japan, on the other hand, is maintaining ultra-low interest rates. This widening interest rate differential is making the dollar more attractive to investors and is putting downward pressure on the yen.
Japan’s current account surplus:
Japan has a large current account surplus, which means that it exports more goods and services than it imports. This surplus is putting upward pressure on the yen. However, the surplus has been declining in recent months, as Japan’s exports have slowed down.
Risk appetite:
The yen is often seen as a safe-haven currency. When investors are feeling risk-averse, they tend to buy yen. However, risk appetite has been improving in recent months, as investors become more optimistic about the global economy. This is putting downward pressure on the yen.
The Japanese government and the Bank of Japan are concerned about the yen’s weakness. A weak yen can make imported goods more expensive and can hurt Japanese exporters. The government and the Bank of Japan are also concerned about the impact of a weak yen on financial markets.
The Japanese government has said that it is on standby to intervene in the currency market again if necessary.
The Bank of Japan has also said that it is ready to take additional measures to support the yen. However, it is unclear how effective the government and the Bank of Japan will be in preventing the yen from weakening further.
What are the implications of the yen’s weakness for the global economy?
The yen’s weakness has a number of implications for the global economy. First, it can make Japanese exports more competitive. This can boost Japanese economic growth and support global economic growth.
Second, the yen’s weakness can make imported goods more expensive for Japanese consumers. This can reduce consumer spending in Japan and dampen global economic growth.
Third, the yen’s weakness can lead to capital outflows from Japan. This can put downward pressure on the yen and other Asian currencies. It can also lead to higher interest rates in Japan and other Asian countries.
Overall, the yen’s weakness has both positive and negative implications for the global economy.
The net impact of the yen’s weakness will depend on a number of factors, including the severity of the yen’s weakness, the response of Japanese policymakers, and the reaction of other markets.