Japanese Yen Continues Its Downfall in 2024

The downfall of the Japanese yen is at the centre of attention again after its most recent tumble in value. On Monday, the currency sank to 160.17 against the US dollar, its lowest since April 1990.

The yen recuperated to 155.01 per dollar later in the day, provoking theories that Japanese specialists had mediated to set up the worth of the cash. The yen somewhat debilitated again on Tuesday, however, it held on to the greater part of the previous day’s gain.

The reason for the yen’s downfall

The worth of a country’s currency rises and falls compared with monetary standards somewhere else in accordance with the laws of the organic market. Right now, investors are being forced to offload the yen because of an enormous gap in loan costs between Japan and the US.

While the US Federal Reserve’s benchmark interest rate is at present set at 5.25 to 5.50 per cent, the Bank of Japan’s (BOJ) comparable rate is only 0 to 0.1 per cent.

Min Joo Kang, senior economist for South Korea and Japan at ING, told Al Jazeera, “The main driver is the rate differential between the US and Japan.”

The gap in interest rates mirrors the different inflation environments in the US and Japan. While Japan has attempted to get costs and wages to rise, following decades of financial stagnation, the US has been busy trying to bring the costs down in the midst of powerful economic growth.

For investors, higher interest rates in the US mean a chance to make a lot better yields on ventures, for instance, government bonds, in that country than they can in Japan.

The more investors that sell the yen, the more it decreases in value – empowering investors to continue selling in a self-sustaining cycle. While the yen’s downfall has been particularly extreme of late, the currency has been on a consistent slide since early 2021.

Throughout the course of three years, the yen has lost more than 33% of its worth. The currency is currently back to where it was following the breakdown of a tremendous resource bubble in the early 1990s.

While different nations have raised interest rates in an effort to tame inflation that spiked during the Coronavirus pandemic, Japan has kept up with rock-bottom borrowing costs with an end goal to shake the economy out of a delayed stagnation known as “the lost decades”.

Despite the hike in the interest rate by the BOJ last month for the first time in 17 years, Asia’s second-biggest economy is as yet an exception around the world. Japan’s debilitating yen has helped support the exporters’ profits by making their items less expensive to customers abroad.

The slide has likewise empowered a record stream of tourists – there were 3.1 million tourists in the nation in only March – whose spending helps support local businesses.

However, the yen’s downfall has strongly raised the expense of imports, especially food and fuel, causing burdens on household budgets.

The upside of a falling yen for exporters has likewise been hosed by the way that numerous large Japanese companies take their operations overseas.

Policy Response

Japanese authorities have expressed concern about the yen’s extreme deterioration and have shown their readiness to intervene if necessary. The intervention from the authorities could involve buying up the yen or raising interest rates to stabilize its value.

On Monday, the unexpected surge in the yen’s worth caused speculations to arise about the involvement of authorities, which would be a first since late 2022. There has been no confirmation of this yet. In any case, intervention of any kind might only temporarily slow down the yen’s depreciation rather than leaving a lasting change in its direction.