Yen Plummets To 34-Year Low as Bank of Japan Maintains Interest Rates

(CTN News) – The yen suffered a significant decline, hitting a fresh 34-year low against the dollar on Friday, following the Bank of Japan’s decision to keep interest rates unchanged and its apparent lack of urgency in addressing the currency’s slide through higher borrowing costs.

Trading as low as ¥157.78 to the dollar, the yen’s descent was exacerbated by remarks from BoJ governor Kazuo Ueda, who indicated that the currency’s weakness had not yet significantly impacted Japanese inflationary pressures.

This sparked speculation that direct intervention in the markets by the government might be imminent to bolster the yen.

BoJ Maintains Interest Rates

BoJ policymakers had unanimously voted to maintain benchmark interest rates within a range of about zero to 0.1 percent, a decision widely anticipated by investors.

The central bank’s stance on interest rates had been complicated by the yen’s depreciation and signals from the US Federal Reserve suggesting the need for sustained high interest rates to combat inflation.

During a press conference following the rate announcement, Governor Ueda stated that while currency rates are not a direct target of monetary policy, currency volatility could impact the economy and prices.

He hinted that if the impact on underlying inflation became significant, it could prompt adjustments to monetary policy.

The apparent indifference of the BoJ towards the weak yen fueled speculation that Japan’s finance ministry might intervene directly in the markets. Later in the day, the yen briefly rose to ¥154.99 before swiftly falling back, prompting speculation of intervention or market error.

Analysts noted that coordination between the government and the BoJ would be crucial in addressing the yen’s weakness effectively. Masamichi Adachi, an economist at UBS, emphasized the need for aligned efforts to stem the yen’s decline.

Nikkei 225 Brief Surge

The Nikkei 225 stock index experienced a brief surge of over 1 percent following the announcement, ultimately closing 0.8 percent higher.

The BoJ’s forecast indicated that core-core inflation would remain near its 2 percent target for the next three years, with potential adjustments to monetary policy based on inflationary trends.

Despite ongoing efforts to maintain sustainable price rises and combat deflation, the falling yen is expected to fuel inflation in the coming months by increasing the cost of imported goods.

Investors anticipate a potential rate hike by the BoJ in July or later in the year, contingent upon inflation and wage growth indicators.

While the BoJ remains watchful of the yen’s impact on inflation, market analysts stress the importance of distinguishing between short-term currency fluctuations and lasting inflationary signals.

As the yen continues its downward trajectory, the focus remains on how policymakers will navigate the economic landscape to ensure stability and growth.

SEE ALSO: Canada Invests $59.9 Million in Semiconductor Projects with IBM