The Japanese yen continued its downward trend today after the Bank of Japan (BoJ) reaffirmed its commitment to maintaining an ultra-loose monetary policy. This comes despite increasing pressure from global markets and growing inflationary concerns in Japan. The USD/JPY pair surged to 149.50, approaching the key psychological level of 150, as the widening interest rate gap between the U.S. and Japan continues to weigh heavily on the yen.
The BoJ, under Governor Kazuo Ueda, has stuck to its yield curve control (YCC) policy, keeping short-term interest rates at -0.1% and the 10-year government bond yield capped at around 0%. This stance is in stark contrast to other major central banks, particularly the U.S. Federal Reserve, which has aggressively raised rates to combat inflation. As a result, the yen has been one of the worst-performing major currencies this year.
Market participants had been hoping for a more hawkish pivot from the BoJ, given that Japan’s inflation rate has recently exceeded its 2% target. However, the central bank has repeatedly stated that it views the inflation as largely cost-push and transitory, driven by higher global energy prices rather than strong domestic demand. This perspective has allowed the BoJ to justify maintaining its accommodative policy, aiming to support Japan’s fragile economic recovery.
The yen’s decline has raised concerns about potential intervention by Japanese authorities. In 2023, the Ministry of Finance stepped in to prop up the yen when it fell past the 150 mark, a move that temporarily stabilized the currency. However, with the yen nearing this level once again, traders are watching closely for signs of intervention. Analysts suggest that the BoJ and the government may be reluctant to intervene this time, given that any action could be counterproductive unless it is accompanied by a shift in monetary policy.
A weaker yen benefits Japan’s export-driven economy by making its goods cheaper overseas, but it also raises the cost of imports, particularly energy, which Japan heavily relies on. This has led to a dilemma for policymakers, who must balance supporting growth with managing the negative effects of currency depreciation on living costs.
Looking ahead, the yen is expected to remain under pressure unless the BoJ signals a change in policy or the Federal Reserve shifts to a more dovish stance. With inflation concerns still present and global interest rates trending higher, the yen’s weakness could persist, keeping USD/JPY on track to breach the 150 threshold.
Investors are now awaiting key economic data from Japan, including inflation and GDP figures, which could influence the BoJ’s next steps. Until then, the yen’s future remains closely tied to the central bank’s ultra-loose policy, leaving it vulnerable to further depreciation in the global market.
