The Japanese yen fell to a 150-yen level against the US dollar for the first time in a year on Tuesday, as the Japanese currency continues to weaken on a mix of ultra-loose monetary policy in Japan and rising US interest rates.
The dollar/yen rate hit 150.16 in mid-afternoon trading, a level not seen since October 2022. The yen's decline has been driven by the Bank of Japan's (BOJ) commitment to maintaining ultra-low interest rates, even as other major central banks around the world are raising rates aggressively to combat inflation.
The BOJ's ultra-loose monetary policy has made Japanese government bonds less attractive to investors, while rising US interest rates have made US bonds more attractive. This has led to a shift in capital flows out of Japan and into the United States, which has weighed on the yen.
The yen's weakness is a concern for Japanese policymakers, as it increases the cost of imports such as food and energy for families and businesses. The BOJ could intervene in foreign exchange markets to support the yen, as it did in October 2022 when the yen also fell to 150 against the dollar. However, analysts say that the BOJ is likely to be hesitant to intervene too much, as it could undermine its efforts to achieve its inflation target.
US Labor Report Shows Continued Tightness in Jobs Market
The US Labor Department reported on Tuesday that the number of vacant job openings in the United States rose to 9.6 million in August, from 9.3 million in July. This is the second-highest level on record, and it suggests that the US jobs market remains extremely tight.
The data could give the Federal Reserve (Fed) room to increase interest rates further in its fight against inflation. The Fed has already raised interest rates three times this year, and it is expected to continue raising rates in the coming months.
Rising US interest rates are likely to boost the US dollar against other currencies, including the yen. This is because investors will be seeking to earn higher returns on their investments in US dollars.
Impact on Japanese Economy
The yen's weakness and rising US interest rates are likely to have a mixed impact on the Japanese economy. On the one hand, a weaker yen will boost Japanese exports, as Japanese products become more competitive in foreign markets. However, a weaker yen will also make imports more expensive, which could fuel inflation in Japan.
Rising US interest rates could also have a negative impact on the Japanese economy, as they could lead to a slowdown in global economic growth. This could hurt Japanese exports and businesses that rely on overseas markets.
Overall, the outlook for the Japanese economy is mixed. The yen's weakness and rising US interest rates could have both positive and negative impacts. The Japanese government and the BOJ will need to monitor the situation closely and take appropriate measures to support the economy.
