The Yen experienced a sharp decline following the Bank of Japan’s (BOJ) announcement that it would continue its current monetary easing policies. This decision reinforces the BOJ’s outlier status among major central banks, most of which are actively tightening monetary policy to curb rising inflation.
The BOJ’s commitment to its ultra-loose policy, which includes negative interest rates and yield curve control, stands in stark contrast to the actions of the U.S. Federal Reserve, the European Central Bank, and the Bank of England, all of which have been aggressively raising interest rates.
This divergence in monetary policy has led to a widening interest rate differential between Japan and other developed economies. This differential makes Yen-denominated assets less attractive to investors, further contributing to the currency’s weakness.
Analysts predict that the Yen will likely remain under pressure as long as the BOJ maintains its dovish stance and other central banks continue to tighten their monetary policies. The impact of a weaker Yen on the Japanese economy, particularly in terms of import costs and inflation, will be closely monitored.
