The yen fell against the dollar following the Bank of Japan’s (BOJ) decision to continue its ultra-loose monetary policy. This move reinforces the divergence between the BOJ and other major central banks, particularly the US Federal Reserve, which is actively raising interest rates to combat inflation.
The BOJ’s commitment to its yield curve control policy, which aims to keep interest rates low, has put downward pressure on the yen. This policy involves maintaining short-term interest rates at -0.1% and targeting a 0% yield on 10-year Japanese government bonds.
Currency analysts suggest that the yen’s weakness is likely to persist as long as the BOJ maintains its dovish stance while other central banks continue to tighten monetary policy. The widening interest rate differential makes the dollar a more attractive investment for many investors.
Factors contributing to the yen’s depreciation include:
- BOJ’s ultra-loose monetary policy
- Federal Reserve’s interest rate hikes
- Widening interest rate differential between Japan and the US
- Investor preference for higher-yielding currencies
The impact of a weaker yen on the Japanese economy is mixed. While it can boost exports by making Japanese goods more competitive, it also increases the cost of imports, potentially leading to higher inflation.
