The Japanese Yen has crossed 40 years’ lowest level of 162 against the US Dollar. The dollar has strengthened due to fears of the US Fed raising interest rates. Japan’s Finance Minister has talked about reducing volatility by intervening in the market.
Tokyo [जापान]June 30 (ANI): Japan’s currency yen fell to a 40-year low against the US dollar on Tuesday, raising fears that the central bank may intervene immediately. This weakness in the Japanese currency has come due to the continued strengthening of the US dollar, as many now believe that the US Federal Reserve will raise interest rates this year. In a record decline, the Japanese currency fell below the 162 level for the first time, prompting a response from the Japanese government. The Finance Minister reiterated that appropriate measures will be taken to reduce volatility.
“It all depends on being prepared to respond appropriately to currency fluctuations at any time,” Finance Minister Suzuki Katayama was quoted as saying at a press conference by Reuters. Japan’s Finance Ministry data showed that Japan had intervened from April to May to stabilize the foreign exchange market, spending more than US$72 billion.
Central bank actions and internal challenges
The Japanese central bank recently raised interest rates to 1 percent, its highest level in 30 years, as part of efforts to normalize its monetary policy. Bank of Japan Governor Kazuo Ueda, who missed the policy event due to hospitalization, also has to deal with the country’s Prime Minister Sanae Takaichi, who wants to keep rates low as she plans more spending to boost economic growth. Japan, which has historically struggled with deflation and where interest rates have remained low, has now begun to raise rates and reduce its purchases of Japanese government bonds (JGB).
Carry trade became the reason for yen’s weakness
Yen weakness may put pressure on policymakers, so another hike can be expected. The Japanese yen has suffered losses due to the ‘carry trade’, as investors borrow at low rates in Japan and invest in high-yielding assets in the US. The interest rate differential between Japan and Western countries has been a concern as it puts pressure on the Japanese currency.
Concerns about rising inflation and economic challenges
The Japanese central bank last raised rates in December, taking them to 0.75 percent. Another rise cannot be ruled out as wholesale prices rose above 6 percent in May due to energy pressures arising from the Middle East crisis. Although the interim peace agreement has brought some degree of normalcy to the region, fears remain that higher wholesale prices could impact consumer prices as well.
The falling yen maintains inflation fears as Japan relies heavily on its energy imports. Another round of interest rate hikes could also pose challenges for the economy as it grapples with slowing productivity and an aging population. Higher interest rates also threaten to increase borrowing costs for both the government and private industry. (ANI)
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