The Japanese Yen was at its lowest level against the dollar in two decades on Wednesday, extending recent falls as the gap widens between Japan’s ultra-loose monetary policy and US tightening.
The moves by the US Federal Reserve towards a more aggressive policy and the skyrocketing oil prices in Japan have pushed the currency lower. according to analysts.
One US dollar bought 126 yen yesterday afternoon, the lowest rate since 2002. A weaker yen would likely hit Japanese households’ purchasing power and domestic-oriented small businesses that will face higher import costs.
The drop came after the Bank of Japan Governor Haruhiko Kuroda warned the recent rise in inflation driven by higher import costs could hurt the economy, stressing the central bank’s resolve to keep monetary policy ultra-loose.
While the BOJ chief said the world’s third-largest economy was expected to recover as consumption shows signs of improvement, and robust overseas demand underpin exports, he also warned of risks.
“Consumer inflation is likely to clearly accelerate as energy prices rise sharply and companies steadily pass on higher raw material costs to households,” Kuroda was quoted as saying.
“The outlook, however, remains highly uncertain due to the impact of the pandemic, as well as developments regarding Ukraine and the impact on commodity prices,” Kuroda added.
He stressed the need to maintain the BOJ’s massive stimulus to support an economy yet to recover to pre-pandemic levels.
“Recent rising inflation, driven by higher import costs, weighs on Japan’s economy by reducing households’ real income and corporate profits,” Kuroda said.