Excessive speed of yen’s depreciation cannot be ignored

Editorial

11:56 JST, October 21, 2022

The yen’s depreciation has yet to be halted. On Oct. 20, it fell briefly to the ¥150 level against the dollar on the Tokyo foreign exchange market, marking a roughly 32-year low.

The Japanese currency has thus tumbled by as much as ¥35 from around ¥115 at the start of the year.

Sharp currency fluctuations make it difficult for companies to plan their operations, which can seriously impact the economy. Japan relies on imports for much of its energy and food. Electricity charges and prices of food and other items are on the rise, straining household budgets.

When the yen plummeted on Sept. 22, the government and the Bank of Japan intervened in the currency market to buy yen and sell dollars for the first time in about 24 years. It is important to take decisive action against speculative moves and demonstrate that excessive currency fluctuations will not be tolerated.

The main reason for the weak yen lies in monetary policy differences between Japan and the United States.

The U.S. Federal Reserve Board is rapidly raising interest rates. Though this might cool the economy, the Fed has indicated its intention to continue tightening its monetary stance, putting priority on curbing the inflation that is plaguing people’s lives.

Meanwhile, the Bank of Japan is continuing with its policy of massive monetary easing, citing slow economic recovery as one of the reasons. As a result, the interest-rate differential between Japan and the United States has widened and investing in dollars rather than yen has become more advantageous, with the dollar being snapped up apace.

Bank of Japan Gov. Haruhiko Kuroda has repeatedly indicated in the Diet and elsewhere that he intends to continue to ease monetary policy. “We won’t raise interest rates for the time being,” he said at a press conference on Sept. 22. Soon after, the yen began to be quickly sold off.

But isn’t the yen’s weakening being accelerated by the central bank’s stance of solely emphasizing the maintenance of its easy monetary policy? Since the BOJ’s policy is one of the causes of the yen’s depreciation, the bank needs to reconsider the way it disseminates information.

The dollar’s rise against currencies other than the yen also has advanced to the point where it can be called “the sole appreciation of the dollar.”

Earlier this month, finance ministers and central bank governors from the Group of Seven advanced nations and the Group of 20 major economies shared the view that swift currency fluctuations are having a negative impact on the global economy.

This is because many countries are being buffeted by inflation as U.S. interest-rate hikes accelerate the depreciation of their respective currencies. There is concern that emerging economies could suffer currency crises due to the outflow of funds, or that the burden of their dollar-denominated debts could balloon and hinder their fiscal management.

However, U.S. President Joe Biden gave a boost to his country’s strong currency, saying he was “not concerned about the strength of the dollar” and that he accepted the present exchange rate.

It is unlikely that the United States desires an excessively strong dollar to disrupt the global economy. Washington is encouraged to steer its monetary policy to take international harmony into account.

(From The Yomiuri Shimbun, Oct. 21, 2022)