The yen falls to its lowest price in 24 years

The downhill of the yen seems to have no end. This Monday, after a week of successive falls at exchange rates not seen in two decades, its price fell to 135.19 per dollar, its lowest level in 24 years and since the great Asian crisis at the end of the 1990s, in a decline that has already prompted warnings from monetary authorities in Japan.

The divergence between the accommodative Japanese monetary policy and the rigidity of the central banks of the main Western economies, which have opted for increases in interest rates to combat inflation, has resulted in a cycle in which the yen does not stop back. The Japanese currency has lost almost 15% so far this year as the Bank of Japan keeps its main rates unchanged; on the other hand, US assets continue their general rise on the expectation that the Federal Reserve will continue to raise reference rates after years of very low levels.

But the declines are already beginning to cause concern. “It is important that exchange rates move in a stable manner and reflect the strength of the economy. But lately there have been drastic falls in the yen, which worry us”, admitted the chief secretary of the Japanese Cabinet, Hirokazu Matsuno. “We are ready to respond in any way necessary, while maintaining intense communication with each of the monetary authorities in the different countries.”

For his part, Bank of Japan Governor Haruhiko Kuroda has issued the most serious warning yet. In a parliamentary response, he stated that “a recent rapid depreciation of the yen is undesirable and negative for the economy… It increases uncertainty and complicates business planning.”

Kuroda will head the Bank of Japan’s monthly monetary policy meeting next Thursday and Friday, where he is expected to give some indication as to whether he will maintain his current policy or there will be some kind of measures to strengthen the yen. Analysts believe that the Japanese currency will maintain its volatility at least until then: the Federal Reserve begins its own meeting on Wednesday, when it is expected to raise interest rates in the US market again, by at least half a percentage point.

Until now, Kuroda has maintained a policy of low interest rates in the belief that a weak currency is proving to be beneficial for the Japanese economy, which has seen its exports receive a strong boost. But it is also affecting the pockets of citizens, who see imported products become more expensive, from food to raw materials.

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“What is important for the Japanese economy is that a weaker yen strengthens the positive business cycle from income to spending in the economy as a whole, as companies that see improved income increase capital investment and raise wages,” exposed the governor in his appearance on Friday before the Diet (the Japanese parliament).

Expectations of a new rise in US interest rates and the fall of the yen contributed to a decline in the Japanese stock market, which saw a drop in its benchmark Nikkei index of 3% at the close of Monday, to settle at 26,987.44 points.

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