Japanese Yen Slump Touches a Nerve in Tokyo

Image © Adobe Images

Authorities in Japan are becoming increasingly nervous about monetary and fiscal policy in light of the Yen’s rapid decline.

The yen is rapidly losing altitude in response to shifting sands in Japan’s politics, with the dollar–yen rate touching 153.27 in early Tokyo trading on Friday.

This prompted an increasingly nervous response from policymakers, with Finance Minister Shunichi Kato describing the recent moves as “one-sided and rapid”.

He warned that the government would “carefully examine any excessive or disorderly moves in the market.”

Although the focus of JPY weakness remains against the USD, earlier in the week GBP/JPY broke through 205 for the first time since July and EUR/JPY printed an all-time high at 177.93.

Get More From Your GBP/JPY Transfer

Pound Sterling Live consistently delivers stronger rates than major UK banks.
In July, you could have saved up to ¥156,000 on a £50,000 transfer thanks to our competitive pricing.

🔎 See How

i – Based on average GBP/JPY rate observed in July.

These currency moves are great for Japanese exporters but highly detrimental to importers and pose risks to imported inflation and the wider economy.

The blow-out in the Yen follows news that Sanae Takaichi will be the country’s next prime minister.

She is a devout follower of the Abenomics faith: i.e. get the central bank to keep interest rates low and then buy up all the government debt you can issue. This kills expectations for further rate hikes and flattens the yen.

But Takaichi is nervous, saying Friday she has “no intention of attempting to lower the yen further” and emphasised that Bank of Japan policy decisions would be left to the central bank.

This is in stark contrast to comments made last year that raising interest rates at the time was “stupid.”

“At this stage these comments are unlikely to provide much support,” says Derek Halpenny, Head of Research for Global Markets EMEA at MUFG Bank Ltd.

He explains the yen will remain vulnerable ahead of a possible discussion on updating the formal cooperation agreement between the government and the BoJ, signed in 2013 under PM Abe and Governor Kuroda.

“In any case, we are some distance from any prospect of intervention and market participants will therefore see little threat from these comments,” adds Halpenny.