Japanese Yen Reaches 32-Year Low Against the US Dollar

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Last Updated on October 16, 2022 by Bitfinsider

Widening Difference Between US Treasuries and Japanese Government Bonds

According to a study, the exchange rate between the Japanese yen and the United States dollar dropped to 147.66 per dollar, which is the lowest level it has been at in 32 years. The most recent record-breaking collapse in the value of the yen occurred when official numbers from the United States showed that prices had increased at a quicker rate than anticipated. The Federal Reserve of the United States has been increasing interest rates in order to bring inflation under control; however, this has had the unintended consequence of making the dollar more valuable in comparison to other currencies across the world.

On the other hand, in contrast to other central banks, which have followed in the footsteps of the Federal Reserve of the United States and raised interest rates, the Bank of Japan (BOJ) is claimed to have maintained what is known as a “ultraloose monetary policy.” As a result of the gap that has developed between the yields on U.S. Treasuries and those on Japanese government bonds, investors have responded by selling the yen.

The Bank of Japan (BOJ) intervened in foreign exchange markets for the first time since 1998 in response to the growth of the dollar, which caused the yen to fall to a 24-year low in relation to the greenback. According to a report by the BBC, the authorities in Japan are expected to respond to the most recent drop in the value of the yen by conducting another intervention.

According to the story, Japanese Finance Minister Shunichi Suzuki is quoted as saying that “necessary measures” will be taken in order to prevent any further depreciation of the yen.

We are unable to endure the excessive volatility in the currency market that is caused by speculative actions. According to what Suzuki was quoted as saying, “We’re watching currency moves with a high feeling of urgency.”

When the value of the Japanese yen dropped against the US dollar by more than two yen in a single day around the end of September 2022, the Japanese government responded by spending close to $20 billion. Even if the intervention did help to stabilize the yen, several analysts continue to doubt whether or not such a solution can be maintained over time.

However, the International Monetary Fund (IMF) stated that a temporary foreign exchange intervention may be the most appropriate answer to the problem in a new blog post that was published on their website. An intervention of this kind in foreign exchange can “help avert adverse financial amplification if a substantial devaluation increases financial stability risks, such as corporate defaults due to mismatches,” as it is noted in the blog.

According to the International Monetary Fund (IMF), foreign exchange intervention could potentially help a country’s monetary policy in addition to contributing to the reduction of the threat to financial stability.

According to an explanation provided by the International Monetary Fund (IMF) blog, “Finally, temporary intervention can also support monetary policy in rare circumstances where a large exchange rate depreciation could de-anchor inflation expectations and monetary policy alone cannot restore price stability.”

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