Yen drops to 20-year low against dollar

The yen hit its lowest level against the dollar in two decades on Wednesday, extending recent falls as the gap widens between Japan’s ultra-loose monetary policy and Fed tightening.
Despite being traditionally considered a safe-haven currency, uncertainty fuelled by Russia’s war in Ukraine has not caused the yen to strengthen.

Instead, moves by the US Federal Reserve towards a more aggressive policy and the shock of rising oil prices in Japan — a major importer of fossil fuels — have pushed the currency lower, analysts say. One dollar bought 126 yen at around 0630 GMT on Wednesday, the lowest rate since 2002.

“The Japanese yen has been one of the weakest currencies anywhere in the world this year,” Dutch banking group ING said in a recent commentary.

“Driving the rally has been the perfect storm of a hawkish Federal Reserve, a dovish Bank of Japan (BoJ), and Japan’s negative terms of trade shock as a major fossil fuel importer.”
Swiss Bank UBS said a weaker yen would likely hit Japanese households’ purchasing power and domestic-oriented small businesses who will face higher import costs.

“The government is offering fiscal supports and most likely will expand the supports. We think the JPY purchase intervention is possible if the pace of depreciation is regarded as too fast,” it said in a note.

“We cannot completely deny the possibility of the BoJ adjusting policy to cope with public criticism” on the yen’s depreciation, UBS added, noting that the bank under Kuroda “has been quite flexible and pragmatic in the past”.

Prime Minister Fumio Kishida did not comment directly on the yen’s fall when asked on Tuesday, but emphasised the importance of stability in foreign exchange rates.

Source: eNCA

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