Japan Announces Exchange Rate Stability Is Crucial

According to Japan’s top government official, the country will watch currency movements carefully. The exchange rate stability is important after the safe-haven Japanese yen hit a four-year low against the greenback.

The U.S. dollar has increased 4.6% against the Japanese currency since its latest low hit in mid-September. The rise came amid rising bets that the U.S. will soon begin unwinding pandemic-era policy. Meanwhile, Japan looks poised to keep interest rates low for some time.

The greenback earlier soared as high as 114.585 against the yen for the first time since November 2017.

When asked about the yen’s slump, Yoshihiko Isozaki, the deputy chief cabinet secretary, said that currency stability is extremely important. Hence they’ll continue to watch market moves carefully.

Remarkably, a weak yen gives exports a competitive advantage overseas.

However, the yen’s recent drop, coupled with increasing energy prices, has heightened worries over higher costs for households. Therefore retailers are still reeling from the COVID-19 pandemic.

A weak yen aggravates the pain of higher commodity costs

According to Ryutaro Kono, chief economist at BNP Paribas, for consumers, a weak yen aggravates the pain of higher commodity costs. He added that it’s particularly hurting for low-income households.

Notably, oil prices rose to seven-year peaks. Kishida announced on Monday that Japan, which imports all but a tiny amount of its energy needs, will urge global oil producers to raise output.

The market is now waiting for Bank of Japan Governor Haruhiko Kuroda’s comments about the recent yen moves at his briefing scheduled after the bank’s policy meeting next week.

Kono of BNP Paribas said that if oil and the USD/JPY remain around current levels for a year. Therefore core consumer inflation will accelerate to near 1% – below the Bank of Japan’s 2% target but high enough to harm households. Remarkably, in August, core consumer prices were flat from a year earlier, halting a 12-month run of drops on higher energy costs.

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