Japan's national currency, the yen, slid to a 40-year low this week, directly pushing up the cost of imports and broader inflation for the nation's working class. Finance Minister Satsuki Katayama stated on Wednesday that Japan would take decisive action in the currency market if needed. This signal came as the yen continued its alarming decline against the dollar.
Chief Cabinet Secretary Minoru Kihara echoed this sentiment on Wednesday, declaring the government's readiness to "respond as appropriate at any time." Tokyo's alarm is palpable, yet the currency's managed decline continues. Katayama reiterated her stance to reporters, confirming that if intervention is necessary, "we will take decisive action appropriately at any time." This statement followed the dollar topping 163 yen overnight, reaching a 40-year high.
Markets are now watching for signs of intervention, particularly after Tokyo acted in April and May of the same year. Those interventions occurred when the Japanese currency weakened beyond the 160-dollar level. Top currency diplomat Atsushi Mimura, whose timing is crucial for any intervention, made no official comment when approached by reporters earlier on Wednesday.
The Cost to the People
Despite official "jawboning," the yen's downtrend has not reversed. Analysts attribute this to broad-based dollar strengthening and the Bank of Japan's (BOJ) persistently low interest rates. The yen hit 163.24 per dollar in New York trade two days ago, marking its weakest point since late 1986. This decline occurred amid a broad dollar rise, fueled by the latest round of attacks in the Middle East. These global events pushed oil prices higher, stoking concerns about U.S. inflation. The yen stood around 163.12 in Asia on Wednesday.
Soaring energy costs, directly linked to the Middle East conflict, have added significant inflationary pressures. These costs compound the existing burden from a weak yen and a tight job market. The native working class bears the brunt of these rising prices, seeing their purchasing power erode with each downward shift of the currency.
Elite Meddling and National Decline
A potential resumption of U.S. rate hikes could further widen the interest rate divergence with Japan. While the BOJ has expressed its readiness to continue raising rates, Premier Sanae Takaichi's first economic blueprint has been interpreted differently. Markets saw her administration's plan as signaling an aversion to higher borrowing costs, a policy choice that benefits specific elite interests over national economic stability.
"The direct trigger of the yen's break below 163 may have been developments in the Middle East," stated Takahide Kiuchi, executive economist at Nomura Research Institute. He added a critical observation: "But another big factor was the blueprint, which failed to dispel concern over Japan's fiscal policy and the chance of government meddling in monetary policy." This "government meddling" directly undermines the independence of national economic institutions.
Kiuchi warned that if the government were to have a "big say in monetary policy," the BOJ could "fall behind the curve in dealing with inflation." Such a scenario, he concluded, would further weaken the yen, a trend that could continue indefinitely. The BOJ did raise interest rates to a 31-year high of 1% in June of the same year. A Reuters poll, conducted before that hike, showed many analysts projecting the BOJ to take rates to 1.25% by year-end, a move that may now be too little, too late, given the political interference.