The Japanese yen continued its losses during today’s trading in the Asian market, falling for the fourth consecutive day against the US dollar, approaching its lowest levels in two weeks. The decline followed the Bank of Japan’s 2025 monetary policy meeting, where the Bank of Japan decided, as expected, to keep its short-term interest rate unchanged at 0.50%, the highest level since 2008, by consensus of its nine board members.
The decision came amid growing fears of the fallout from US President Donald Trump’s global trade war, which added further pressure on the Japanese economy and global financial markets. Despite the Japanese economy achieving remarkable progress in reaching the inflation target of 2%, the Bank of Japan preferred to keep its monetary policy unchanged, in anticipation of any global economic slowdown that may negatively affect the national economy.
The yen ended Tuesday’s trading slightly lower than 0.1%, extending losses for the third consecutive day, hitting a two-week low of 149.93 yen per US dollar, amid negative expectations about the Bank of Japan’s decisions. The bank affirmed in its meeting on Wednesday its commitment to strict monetary policy, sticking to the interest rate at 0.50% without any changes to its monetary instruments, despite increasing inflationary pressures and improving wage and price data.
The Bank of Japan’s decision reflects the caution it adopts in adjusting its monetary policy, in light of global economic uncertainty and the impact of US tariff measures on markets. Through this decision, the bank aims to maintain economic stability and control inflation without risking a further economic slowdown that may negatively affect Japan’s economic growth.
Risks to investors due to yen fluctuations
The volatility of the Japanese yen is a major concern for investors in the financial markets, as it can directly affect the returns and risks associated with investments. The yen is one of the world’s major currencies, and its volatility plays a crucial role in guiding the movement of markets, especially in the context of international transactions and investment in Japanese assets. One of the main risks faced by investors is the impact of yen fluctuations on investment returns. When investors put their money into assets denominated in yen, the value of these assets can change significantly due to exchange rate fluctuations.
For example, if the yen falls significantly, returns on investments in Japanese assets may erode when converted into other currencies. This means that investors should be careful about the timing of their entry and exit from the market, taking into account exchange rate movements. Risks also increase when it comes to foreign investments. If foreign companies invest in Japan, any fluctuations in the value of the yen can affect their profitability. For example, if a U.S. company exports its products to Japan, the appreciation of the yen can increase the cost of products in yen, negatively affecting the company’s sales. On the other hand, if the yen falls, Japanese companies may benefit from increased competitiveness.
There are also psychological effects of yen volatility on investors. Large fluctuations in the yen’s exchange rate may increase uncertainty in the markets, creating an unstable environment for investors. These disorders may lead to increased psychological stress, making investors more cautious in their decision-making. In some cases, significant changes in the value of the yen can lead to a mass sell-off, exacerbating the situation.
The impact of the Japanese yen movement on global markets
The movement of the Japanese yen is one of the important factors affecting global markets, as Japan’s currency plays a pivotal role in international trade and finance. Financial markets are highly interconnected, which means that any movements in the yen’s exchange rate can have wide effects on other currencies and markets. First, the yen’s weakening affects Japanese exporting companies. When the yen weakens, Japanese products become cheaper for foreign buyers, boosting sales of Japanese companies in international markets. This boosts profits and gives a positive boost to Japanese financial markets, but can also lead to volatility in global stock markets.
If profits of Japanese companies rise, it could positively impact other markets they do business with. Second, the movement of the yen has a significant impact on the US market. When the yen weakens, it may cause increased demand for Japanese goods, leading to a larger trade deficit for the United States. On the other hand, this may encourage US companies to raise their prices to offset losses caused by Japanese competition. Third, yen volatility also affects emerging markets.
A stronger yen can lead to fluctuations in capital flows to emerging markets. When the yen weakens, investors may prefer to direct their investments towards Japanese markets, leading to a decline in investments in emerging markets. This could negatively affect emerging economies that depend on external capital flows, adding further pressure to those markets. The movement of the yen has an impact on commodity prices. The yen is one of the major currencies traded in global markets, and any fluctuations in its value can affect the prices of oil, gold and other commodities.
