Macroscope | Japanese yen faces a long slide as currency markets ignore official warnings
- The weaker yen is making Japan’s import bill worse, from energy to raw materials, amid supply bottlenecks
- But there is little Japan can do to make currency markets listen in a global inflationary environment, especially as the Bank of Japan insists on a loose monetary policy
The Japanese yen hit a four-year low against the US dollar last week, and has also been sliding against the Chinese yuan. This was despite Japan’s Finance Minister Shunichi Suzuki’s statement earlier this month, when he chose to let foreign exchange markets know that he was watching them closely.
If it was meant to be a cautionary warning, Suzuki might find that it has fallen on deaf ears.
The first problem is that currency markets have concluded that the current global macroeconomic situation and Japan’s specific circumstances are consistent with a weaker yen, even if the finance ministry in Tokyo is unimpressed.
In truth, it’s not that unusual for the finance ministry to try and “guide” the currency markets when Japanese officials consider that the yen has moved too far from levels that Tokyo feels are “fair value”. But this has tended to occur when the yen has strengthened, eroding the competitive advantage of Japan’s influential export sector.
03:17
Japan beef bowls and coffee costing more as workers feel the pinch from food price hike
Ordinarily, the boost of a weak yen to the competitive advantage of Japanese exporters would be such that the currency market might expect the finance ministry to have little to say on the matter – unless the extent of the fall in the value of Japan’s currency against the US dollar had prompted loud enough complaints from US manufacturers that Washington had felt obliged to comment.