Japan’s Finance Minister Signals Possible Action on Yen Slide

March 28, 2024

Finance Minister Signals Potential Yen Intervention

Amidst the yen’s plunge to a 34-year low against the dollar, Japan’s finance minister, Shunichi Suzuki, has issued a stark warning. On Wednesday, Suzuki conveyed that the government is prepared to take “decisive steps” to address the currency’s decline—a phrase that harkens back to Japan’s previous market intervention in autumn 2022.

The dollar’s surge on robust US data prompted the yen to weaken further, trading at 151.97 per dollar, a slight dip from the 151.94 level that prompted Japan’s authorities to intervene last October. This marks the yen’s weakest position since the economic downturn that followed the bursting of Japan’s asset bubble in the early 1990s.

Christopher Wong, a currency strategist at OCBC in Singapore, highlighted the market’s cautious approach, suggesting that Tokyo’s failure to act could lead to an even steeper rise in the dollar/yen pairing. Suzuki has expressed a heightened sense of urgency in monitoring market movements following the yen’s fall.

Broader Economic Concerns

Bank of Japan Governor Kazuo Ueda also weighed in, emphasizing the importance of currency fluctuations on the nation’s economy and price stability. The devalued yen has made imports costlier, contributing to inflation, while simultaneously lowering export prices for Japan, the world’s fourth-largest economy.

Forex strategists at National Australia Bank have observed the weak yen’s knock-on effects, including a significant drop in China’s yuan, which may be an attempt to maintain Chinese export competitiveness.

The recent policy shift by the Bank of Japan, which saw an interest rate increase for the first time since 2007, has not quelled speculation about further hikes. This has perpetuated the yen’s role in carry trades and reduced repatriation flows that could otherwise bolster the currency. As a result, the yen has emerged as the worst-performing major currency this quarter, depreciating over 7 percent against the dollar.

currency depreciation
Japans finance minister may intervene in currency markets, buying yen or selling dollars to support its value. Other steps include adjusting interest rates and implementing fiscal policies aimed at stabilizing the yen and bolstering economic confidence.

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