The Japanese yen has seen notable movements in the currency markets recently, with the dollar falling 0.4% against the yen to 154.18 yen, moving away from a recent high of 156.76 yen. This decline reflects changes in investor sentiment and expectations regarding Japanese monetary policy and the global economy in general. The yen is considered a currency enjoyed by investors as a safe-haven currency in times of economic or geopolitical turmoil, which increases demand for it in periods of volatility in global financial markets.
The Japanese yen has been affected by a number of economic and political factors. Although Japan does not face the same inflationary pressures as some major economies, it relies heavily on monetary policies set by the Bank of Japan. For example, when a bank adopts a negative interest rate policy or continues its quantitative easing policies, this may lead to pressure on the yen’s value. This is because increasing the money supply through accommodative policies may weaken the currency, making the yen less attractive to investors looking for higher yields elsewhere.
On the other hand, the yen is seeing effects from the movement of the US dollar. Since the dollar represents the world’s largest economy, any change in US monetary policy, especially with regard to interest rates, could directly affect the value of the Japanese currency. When the US Federal Reserve raises interest rates, it may strengthen the dollar compared to the yen, putting pressure on the latter in the currency markets. Also, the Japanese yen is witnessing the effects of shifts in the global economy. In times of crisis or global uncertainty, investors usually prefer to turn to the yen as a safe-haven currency.
Impact of monetary policy of Bank of Japan on yen
The monetary policy of the Bank of Japan is one of the main factors that significantly affect the value of the Japanese yen in the global currency markets. For many years, the Bank of Japan has pursued an unconventional monetary policy aimed at stimulating economic growth in the country, which has suffered a prolonged economic contraction.
Among the most prominent monetary policy tools used by the bank are negative interest rates and quantitative easing programs. Negative interest rates mean that the central bank charges very low or even negative interest rates on bank deposits, encouraging banks to provide loans to consumers and businesses instead of holding cash in unproductive accounts. This policy aims to stimulate spending and investment, but at the same time puts pressure on the value of the yen.
Quantitative easing, on the other hand, involves printing more cash to buy government bonds from financial markets. This policy aims to increase liquidity in the economy, thus supporting economic growth under difficult economic conditions. But it also leads to an increase in the supply of Japanese currency in the markets, which reduces its value relatively against other currencies. The more the Bank of Japan expands these policies, the more yen is supplied, which usually leads to a currency weakening.
When the Bank of Japan adopts an accommodative monetary policy, it often has a negative impact on the value of the yen. That’s because an increase in the money supply reinforces a currency’s weakness, making it less attractive to investors looking for higher returns elsewhere. Quantitative easing and negative policies also contribute to reducing returns on yen-denominated assets, reducing the attractiveness of the Japanese currency to foreign investors.
The impact of yen movements on Japanese economy
Yen price movements are one of the important factors that directly affect the Japanese economy. The Japanese yen is one of the major currencies traded in the global financial markets.
and any change in its value could lead to significant repercussions on the local economy. Although the yen is a safe-haven currency in periods of global volatility, its moves toward other currencies can affect Japan’s key economic sectors, such as exports, inflation, and financial markets.
In terms of exports, the Japanese currency is a crucial factor in the ability of Japanese companies to compete in global markets. Japan is one of the world’s largest export economies, relying on exports of automobiles, electronics, and other high-tech goods. When the yen weakens, Japanese goods become more competitive in global markets.
as the price of Japanese products becomes less expensive for foreign buyers.
This boosts export demand, contributing to economic growth. Conversely, if the Japanese currency rises sharply, it could make Japanese goods more expensive for foreign consumers, reducing demand for these products and negatively affecting the performance of exporting companies.
On the other hand, yen price movements are also weighing on inflation in Japan. When the yen weakens, it can lead to an increase in the prices of imported goods, raising production costs for Japanese companies that rely on imported raw materials.
This increase in costs may pass on to consumers, contributing to higher inflation. At the same time, if the Japanese currency rises, it could lower the cost of imported goods, helping to reduce inflationary pressures, but could lead to negative effects on the economy in terms of weak business activity and employment.
