Japanese Finance Minister Shunichi Suzuki has issued his strongest warning yet as the yen collapsed to its lowest level in 34 years. The minister warned that he would take “decisive measures” and that all options were on the table to stop the collapse of the currency. According to Reuters the yen is at its weakest level since the middle of 1990, around the time Japan’s asset bubble burst. This was followed by decades of economic stagnation.
The Japanese currency fell to 151.96 against the dollar on Wednesday. It was around 149.30 when the Bank of Japan (BOJ) announced its policy shift last Tuesday. The central bank abandoned its negative interest rate policy with the first rate hike in 17 years according to a Bloomberg report
Market analysts warn that the collapse of the yen could have a knock-on effect on other currencies and, if unchecked, could prompt stagnation in the Japanese economy. Expectations are on for the finance minister to intervene by buying up the yen. According to the Nomura Research Institute, Japan last intervened in such a fashion was in 2022 when it bought 2 trillion yen ($60.8 billion) of the Japanese currency and sold the dollar.
A weak Japanese yen will mean higher rates of inflation while making exports much cheaper. Though the BOJ has already announced an interest rate hike from 0% to 0.1% another rate hike could be an option. Higher interest rates will however, hurt the Japanese domestic economy, where there is low demand and high mortgage rates.
The Japanese yen’s fall is also tied to the US dollar which has risen. Market analysts believe that if this trend continues Japan may have no option but to raise interest rates.
For the current quarter that ends later this week, the yen is the worst-performing major currency, down more than 7% on the dollar.
