Japan Intervenes to Support Yen for the First Time Since 1998 Due to Prevent More Currency Depreciation

Posted on 09/22/2022

The Federal Reserve increased interest rates by 75 basis points. This prompted Japan to intervene to support the Japanese yen for the first time since 1998. The Japanese government is trying to stem a 20% decline in yen against the U.S. dollar this year. The rare intervention is a showcase of central bankers’ concern of a stronger U.S. dollar. The U.S. dollar’s strength against the yen is really backed by the interest rate differential between America and Japan.

The Bank of Japan has taken a widening monetary policy divergence with the U.S. and European Union. The Bank of Japan maintains super-low interest rates. Japan is the world’s third-largest economy. A falling yen means the Japanese businesses and consumers will have to pay more for imported food, oil, and natural gas as imports are generally traded in U.S. dollars.

“Although foreign exchange rates in principle should be determined in the market, we cannot stand by idly when speculative and excessive moves repeatedly occur,” said Japan Finance Minister Shunichi Suzuki, adding that the Japanese government would act again if needed.

Keywords: Federal Reserve System.

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