An electronic board displaying the course of the yen, in Tokyo on October 20, 2022 (AFP / Kazuhiro NOGI)
The Japanese currency continued its tumble against the dollar on Thursday, which reached the symbolic bar of 150 yen for the first time since 1990, stoking speculation around a possible new intervention by Japan to support the yen.
Around 0740 GMT, the dollar was worth 149.92 yen, after briefly rising above 150 yen, a new low since August 1990 amid growing divergences between US and Japanese monetary policies.
The yen has lost more than 30% of its value against the dollar since the start of the year, as the Bank of Japan (BoJ) keeps rates near zero to support growth in Japan, believing that conditions are not come together to tighten credit conditions.
The BoJ “wants to encourage some inflation: it wants to encourage higher wages, on the assumption that this will accelerate domestic demand and the profitability of Japanese companies, closing the loop of wage inflation”, explained to AFP Jane Foley, currency strategist at Rabobank.
Because the post-pandemic economic recovery in the archipelago remains sluggish and Japanese inflation, even if it is also accelerating (2.8% in August over one year excluding fresh products, a new record since 2014), remains well below the levels observed in the United States and Europe and should fall back as early as 2023, according to the BoJ.
Conversely, the American Federal Reserve (Fed) continues to accentuate its rate hikes in order to curb galloping inflation in the United States.
Faced with the continued fall of the yen, analysts expect further intervention in the foreign exchange market by the Japanese government, which already acted at the end of September – when the dollar approached 146 yen – to support its currency, a first since 1998. This intervention was estimated at nearly 20 billion dollars.
But “intervention is difficult for the government because it generally only works if the (economic) fundamentals are going in the same direction”, which is not the case when the soaring dollar is fueled by the rise in US interest rates.
Economists are also not ruling out the possibility of a “quiet intervention” by the Japanese government, on a scale small enough to go undetected. A senior Japanese finance ministry official said last month that such a method was among the options available.
Japan cannot “absolutely” condone excessive movements in the foreign exchange market driven by speculation, Japanese Finance Minister Shunichi Suzuki said on Thursday.
© 2022 AFP
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