• Yomiuri Editorial
  • Currency intervention

A step toward dealing with extreme fall in yen’s value

The government and the Bank of Japan have intervened in the currency market to buy yen and sell dollars for the first time in 24 years in order to put the brakes on the yen’s sharp decline. This is noteworthy as a measure taken to counter speculative moves.

At a press conference on Sept. 22, Finance Minister Shunichi Suzuki said, “The recurrence of excessive fluctuations due to speculative trading can never be overlooked.”

As a result of the intervention, the yen’s value on the foreign exchange market, which once weakened to nearly ¥146 to the dollar on Sept. 22, temporarily strengthened to the ¥140 range.

Until then, the government and the central bank had failed to take effective measures to halt the lopsided depreciation of the yen. They must continue to monitor market movements and respond swiftly and flexibly if necessary.

The U.S. Federal Reserve Board decided on Sept. 21 to raise its key interest rate significantly, while the Bank of Japan announced on Sept. 22 that it would maintain its large-scale monetary easing policy. The difference in the direction of monetary policy between Japan and the United States became evident once again, and the yen’s weakening was accelerated again.

This is because as the interest rate gap between Japan and the United States widens, it becomes more advantageous to invest funds in dollars. The yen has depreciated by more than ¥30 against the dollar since the start of 2022. Excessive market fluctuations have a major negative impact on the economy, such as making it harder for companies to make business plans.

However, the central bank has continued to ease monetary policy, saying that Japan’s economic recovery has been slow. BOJ Gov. Haruhiko Kuroda emphasized at a press conference on Sept. 22, “We won’t raise interest rates for the time being.”

If the government and the central bank are perceived as incapable of dealing with sharp currency fluctuations, it could accelerate speculative moves. Intervention can be expected to counter such moves.

But it remains to be seen how long the effect will last.

Monetary policy differences between Japan and the United States are expected to remain unchanged for the present. Other central banks, including the European Central Bank, are also raising interest rates across the board. The situation remains the same, in that only the Bank of Japan has been left behind and the yen is prone to be sold off.

A weaker yen pushes up domestic prices through higher import costs. Japan’s national consumer price index rose in August from a year earlier at the steepest pace seen in nearly 31 years, excluding the effects of consumption tax rate hikes. Measures are also needed to alleviate the pain of soaring prices.

The sharp rise in prices of daily necessities such as energy and food has hit low-income earners hard. The government said it will provide ¥50,000 to each household that is not subject to residential tax, but some observers have noted that the recipients of the benefits will disproportionately be elderly people.

The government intends to formulate a comprehensive economic package in October. Measures against high prices should be considered so that support will reach those who really need assistance, including the child-rearing generation and non-regular workers.

(From The Yomiuri Shimbun, Sept. 23, 2022)