Masato Kanda, Japan’s chief currency diplomat, has issued stated that the authorities stand ready to respond to the notable and substantial depreciation of the yen. He has intensified his caution against currency speculators as the yen dipped below a crucial level.
Over the past few months, financial markets have been vigilant regarding the possibility of Japanese authorities intervening to buy yen, as they grapple with the ongoing devaluation of their currency. This decline has, in turn, resulted in elevated import prices and greater living expenses for households.
The country is prepared to take necessary measures to address excessive currency market fluctuations, according to the country’s chief currency official. Kanda, voiced his apprehension about the swift depreciation of the yen against the U.S. dollar, emphasizing Japan’s vigilance in the matter. This statement followed the Bank of Japan’s recent adjustment to long-term government bond yields while continuing its monetary easing policies, which further accelerated the sale of the yen.
“We are ready to take action without ruling out all possible options against excessive volatility,” stated Kanda. “We are on standby.”
Warnings Emerge as Yen Plummets
Japanese authorities typically issue warnings as a precursor to intervening in the currency market. Approximately a year ago, they intervened by purchasing yen and selling dollars to counteract what was described as the yen’s “swift” and “unilateral” depreciation. Masato Kanda stated that the recent fluctuations in the yen are excessive and emphasized the need for “appropriate measures” due to their impact on people’s daily lives.
The yen’s decline is primarily attributed to the growing interest rate gap between Japan and the United States. The Federal Reserve in the U.S. has been aggressively increasing interest rates to combat inflation.
BOJ’s Policy Shift and Interest Rate Gap Propel Yen’s Decline
The U.S. dollar was exchanging at a level just below 151 yen after reaching as high as 151.74 yen during the previous night in New York.
During a two-day policy-setting meeting held on Tuesday, the Bank of Japan (BOJ) decided to permit 10-year government bond yields to surpass their previous cap of 1.0 percent.
One significant reason contributing to the yen’s decline has been the expanding difference in interest rates between Japan and the United States. This divergence is largely due to the Federal Reserve’s vigorous efforts to raise interest rates as part of its strategy to combat inflation.
In simpler terms, the yen has weakened as a result of the interest rate gap between Japan and the United States growing wider. This is mainly because the U.S. Federal Reserve has been implementing substantial interest rate hikes in response to inflation concerns.