The yen’s value against the dollar even collapsed at 147 yen, the lowest level in 32 years. At the end of last month, the Japanese government directly intervened in the foreign exchange market by buying the yen for the first time in 24 years. Nevertheless, within a month, the currency’s value fell to the level it was at the time of the collapse of the bubble.
On the 13th (local time) in New York’s foreign exchange market, the value of the yen per dollar fell to 147.66 yen. It is the lowest level in 32 years since August 1990, when the yen fell to the 160 yen level due to the collapse of the bubble. The US consumer price index (CPI), released the day before, rose 8.2% from a year earlier, beating the market consensus.
“Japan’s economic slump is revealed”
Analysts say that the US central bank (Fed), which declared a ‘war on inflation’, raises the benchmark interest rate again, and the market has accepted a scenario in which interest rates in the US and Japan will expand.
The yen per dollar, which was 115 yen at the beginning of this year, has fallen by 32 yen for the first time in nine months. This is the biggest drop since 1973, when Japan’s exchange rate system moved to a floating exchange rate system. As the dollar continues to dominate, other major currencies such as the euro and pound are also weakening. Japan’s currency value fell even more sharply as its weak economic structure was exposed to the difference in interest rates between the US and Japan, which was close to 4 percentage points.
The Nihon Keizai Shimbun pointed out that “the inadequacy of the Japanese economy was revealed in the failure of only the Bank of Japan to normalize financial policy.” It is explained that the chronic deficit in the trade balance is creating an uncontrollable sell-off of the yen due to the import-dependent energy procurement structure and the relocation of manufacturing facilities abroad.
However, Haruhiko Kuroda, Governor of the Bank of Japan, reaffirmed that it would continue with a negative interest rate policy, saying, “The Japanese economy is recovering slower than the US, so it is not appropriate to return to a monetary tightening policy.” Governor Kuroda is visiting Washington DC, the US, to attend a meeting of finance ministers and central bank governors of the G20 countries together with Finance Minister Junichi Suzuki.
Finance Minister Suzuki said on the same day that “excessive fluctuations in the exchange rate caused by speculative forces are unacceptable,” and “we will take appropriate measures.” This indicated that large-scale monetary easing policies could continue, but intervene again in the foreign exchange market. However, market participants are questioning the effectiveness of the Japanese government’s intervention. This is because there is no way to prevent the weakening of the yen unless the structural factor of widening the US-Japan interest rate gap is removed.
Exchange rate defense spirals in Asia
The depreciation of the currency due to the strong dollar is not unique to Japan. Asian countries are exhausting their foreign exchange reserves to protect the value of their currencies. Citing financial information company Axant Data, Bloomberg News reported that Asian countries excluding China spent $89 billion (about 127 trillion won) of their foreign exchange reserves this year and up to last month to defend the exchange rate. It is the largest in 14 years since the global financial crisis in 2008.
We spent a lot of money last month, especially when the dollar was strong. These countries invested $50 billion last month alone. This is the largest amount since March 2020, at the beginning of the COVID-19 pandemic. Of the $50 billion, Japan spent about $20 billion. The remaining $30 billion was estimated to have been spent by South Korea, Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore, Taiwan and Thailand. South Korea invested $17 billion, Bloomberg reported.
Tokyo = Correspondent Young-hyo Jeong / Correspondent Lee Go-woon hugh@hankyung.com