Japan to Take Action to Stabilize the Yen

Since early 2022, the Japanese yen has depreciated by over 20% against the US dollar, primarily due to the interest rate differential between Japan and the US. Despite multiple interventions by the Japanese government in September and October 2022, as well as in April and May 2024, the yen has continued to weaken. On July 3, 2024, the USD/JPY exchange rate hit a 38-year low, with 1 USD equaling 161.96 JPY.

The persistent easing of monetary policy by the Bank of Japan (BOJ), in contrast to rate hikes by major central banks such as the Federal Reserve and the European Central Bank, has widened the interest rate gap between Japan, the US, and Europe. This divergence has reduced the yen‘s appeal to investors, leading to sustained selling pressure in the forex market. For Japan’s energy-dependent economy, the yens depreciation is particularly concerning, as it further inflates the cost of importing oil, natural gas, and other raw materials, exacerbating economic pressures on households and businesses.

To address the yen‘s volatility, Japanese officials have hinted at potential measures to stabilize the exchange rate. In a routine press conference, when asked about the yen’s continued weakness, Japanese Finance Minister Shunichi Kato stated, “Our stance has not changed.”

Last Friday, Kato noted the recent one-sided and sharp movements in the foreign exchange (FX) market. He further emphasized that appropriate measures would be taken to prevent excessive forex volatility.