The Strategist

Japanese yen hits 20-years low

04/29/2022 - 04:02

For the first time since April 2002, the US dollar/Japanese yen soared above 130. This came as the Bank of Japan reaffirmed its commitment to a loose monetary policy in the face of growing inflation.

Caribb via flickr
Caribb via flickr
"While central banks in the United States and Europe tighten monetary policy or hike rates, the Japanese economy is still recovering from the pandemic's impact," Bank of Japan Governor Haruhiko Kuroda said during a press conference. - Supporting the economic recovery with a patiently pursued soft monetary policy is critical."

The central bank announced on Thursday that it would be purchasing government bonds with yields of 0.25 percent every business day to maintain them below that level. The authority has frequently carried out such actions in April.

Market participants interpreted the decision as a confirmation of the interest rate differential between Japan and the United States, where the Federal Reserve is likely to raise borrowing costs this year to combat inflation. In March, the annual rate of inflation in the United States was 8.5 percent.

Kuroda's comments hastened the yen's slide, which began when the central bank issued a statement earlier in the day on Thursday. The dollar/yen pair hit a 20-year high of 131. The pair was trading at 115 in early March.

Because investors preferred the higher-yielding dollar, the yen has lost more than 10% of its value in less than two months.

Kuroda maintained his belief that currency depreciation is beneficial to the overall economy. The yen's depreciation helps Japanese exporters who pay their workers in yen yet receive dollars or euros in return for their goods.