Yen hits fresh 24-year low as Bank of Japan continues loose policy

The Japanese national flag flutters in the wind on part of the Bank of Japan (BoJ) main building in Tokyo, Japan, on September 14, 2022. – The Bank of Japan conducted an operation on Sept. 14 that is often seen as a precursor to currency intervention, local media said, as the yen continues to crater against a strengthening dollar. (Photo by Richard A Brooks / AFP)

by Sara Hussein
Agence France Press

TOKYO, Japan (AFP) – The yen fell to a fresh 24-year low against the dollar on Thursday, with the greenback rising to nearly 146 after Japan’s central bank kept its ultra-loose monetary policy unchanged a day after the Federal Reserve opened its doors interest rates high and warned of further consequences.

The yen has taken a hit in recent months as the Bank of Japan persists with a decades-old policy aimed at achieving sustained inflation of 2 percent – a benchmark seen as key to boosting the world’s third-largest economy.

It has bucked the trend in other major economies, where central banks – notably the US Fed – are raising interest rates to fight inflation.

Prices in Japan are rising, with the consumer price index hitting 2.8 percent in August, the highest since 2014, but the central bank sees the increases as temporary.

In a statement it said it would maintain its current policy “aimed at achieving the price stability target of 2% for as long as necessary”.

“It will continue to expand the monetary base until the annual rate of increase in observed CPI exceeds 2% and remains stable above target.”

The bank said it saw Japan’s economy on a recovery path, “with the impact of Covid-19 easing and supply-side constraints” but warned of uncertainty from commodity price hikes linked to the war in Ukraine.

The rapid depreciation of the yen has raised concerns in Japan, raising the cost of imported goods for consumers and businesses.

Government officials have insisted they will monitor the situation and take appropriate action if necessary, without detailing what they would be or when they might be implemented.

– ‘BoJ has no choice’ –
The central bank reportedly conducted an “interest rate test” earlier this month, an operation often seen as a precursor to currency intervention.

The move came shortly after the yen was close to breaching the psychologically significant 145 level, and reports of the operation temporarily bolstered the Japanese unit.

It has tumbled from around 115 in March, and the BoJ reiterated on Thursday that “due attention is needed to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices.”

Japan’s top currency diplomat Masato Kanda told reporters hours after the bank’s decision that the government was on “standby” to intervene if necessary, local media said.

But he again failed to explain exactly what would trigger an intervention and his comments did little to support the yen, which remained hovering near the 145 mark.

He also confirmed that there hasn’t been any intervention yet, although the dollar briefly retreated to around 143.50 yen after breaking through the 145 level. The greenback climbed again as high as 145.90 yen.

Hours after the BoJ’s policy announcement, Gov. Haruhiko Kuroda, whose term expires next year, defended sticking to the long-standing program.

“We do not and will not target specific FX levels,” he told reporters.

“It is desirable for foreign exchange rates to reflect economic and financial fundamentals, but the recent rapid depreciation of the yen is not and is negative for the economy,” he added.

But he noted that the dollar has appreciated against most major currencies.

There is little expectation that the BoJ will change course, Shigeto Nagai, head of Japan Economics at Oxford Economics, wrote in a statement.

“Although foreign investors may continue to question the yen and (Japanese government bond) yields until the Fed’s rate-hiking cycle peaks, we believe the BoJ has no choice but to stick with current…policy.”

© Agence France-Presse