Japan's central bank stands firm as yen plummets in value

Business Saturday 25/June/2022 08:44 AM
By: DW
Japan's central bank stands firm as yen plummets in value
Japan's central bank appears unwilling to follow the path of hiking interest rates as seen in some other inflation-hit economies

For over two years, Fumio Takenaka has been looking forward to a foreign beach holiday with her family. With the coronavirus pandemic waning and resort destinations reopening across the Pacific, she started making plans for a week in Hawaii — only to be horrified at the prices she was quoted.

Rising fuel costs have made flights more expensive as travel firms push up their prices in an attempt to claw back some of the income they lost during the forced shutdowns that hit much of the industry. But the biggest impact on the Takenaka family's vacation plans was the rapidly falling value of the yen.

The exchange value of Japan's currency, the yen, has fallen, meaning that today one would have to pay slightly less than 135 yen to buy just $1 — a level not seen since 1998.

This is also down sharply from the exchange rate of 110-120 yen to the dollar seen as recently as mid-March. Analysts are of the opinion that the yen will resume its downward slide and may soon hit the 140-yen level.

"I was shocked when I worked out the yen prices for things like hotels, a day trip to the North Shore to see the turtles, or a meal out in Honolulu. Even the airport transfers seem very expensive now," Takenaka told DW. "We have been to Hawaii a few times before, but I do not remember the prices being so high."

Domestic prices rising

"The cost of food, fuel and everything else has been going up here in Japan, as well, but spending dollars seems to be beyond our budget at the moment," Takenaka said. "I think maybe this year we will go back to Okinawa instead."

The rapid decline in the fortunes of the yen has sparked alarm among Japanese consumers and companies — particularly those that are suddenly finding imports prohibitively expensive. Prime Minister Fumio Kishida and Bank of Japan Governor Haruhiko Kuroda held talks in Tokyo on Monday, during which they described the weakening of the currency as "a matter of concern."

Nevertheless, the Bank of Japan under Kuroda has reaffirmed that it will maintain its ultralow rate policy, in contrast to the central banks of the US and Europe that have been lifting interest rates to rein in inflation. As a result, analysts say, investors have been quick to sell their holdings in the Japanese currency.

"I fully expect the yen to go to 140 to the dollar," said Martin Schulz, chief policy economist for Fujitsu's Global Market Intelligence Unit.

"A weak yen policy and printing money have been core components of 'Kurodanomics,' with that easy monetary policy seen as having a positive impact on the earnings of Japanese exporters, plus bringing in more in yen terms when profits earned overseas are repatriated," he said.