During the past few days, the Japanese yen recorded a decline not seen since August 1998, reaching its value of 143.18 against the dollar, while the Japanese currency declined since the beginning of this year by 20% against the dollar.
This decline in the value of the yen comes at a time when the major global central banks, including the US Federal Reserve and the European Central, are adopting a strong monetary tightening policy, which is manifested by raising interest rates in an attempt to control the rise in inflation, while the Japanese Central Bank has not moved a finger towards interest rates for 24 years.
Interest rates are not an economic driver in Japan
Economist Dr. Nidal Al-Shaar, former Secretary-General of the Accounting and Auditing Organization for Islamic Financial Institutions, says: “The Japanese central bank is not interested in interest rates like the US Federal Reserve and the European Central, as it has taken a decision since 1998 to reduce the interest rate to zero and negative, which means that interest rates It does not represent an economic engine in Japan, unlike other countries, and therefore interest rates have no effect on the depreciation of the yen.”
Energy prices weaken the yen
Speaking to the “Sky News Arabia” website, Dr. Nidal al-Shaar attributed the reason for the decline in the value of the yen to the Russian-Ukrainian war and the rise in energy prices, which made the demand for hard currency great, explaining that energy prices are priced in dollars and sometimes in euros, and therefore when they are Demand for the dollar or the euro The exchange rate of the yen decreases as a result of subtracting large quantities of it until it equals the value of the energy purchase.
Storing more items than needed
In response to a question about the impact of the yen’s decline on the Japanese macro economy, the expert asserts that “Japan’s available stocks of imported materials are more than the stocks of any other country, and this is due to Japan’s vision of the future, where it resorts to storing more materials than needed, and this is a good reflection on exports, as The low yen makes Japanese goods attractive to importers, especially that prices are stable because traders do not raise prices in case of high inflation, so I see that the impact of the decline in the yen is positive in the short term as long as stocks of imported goods are large.
The former Secretary General of the Accounting and Auditing Organization for Islamic Financial Institutions asserts that there is no harm to the Japanese economy as a result of the decline in the yen, and points out that “the Japanese trade balance is affected by import prices more than export prices, because competition among the Japanese is very important even if they have to export at a loss sometimes. to secure a place for themselves in the market.
Fed monetary policy puts pressure on global currencies
For his part, global markets analyst, pioneer Greens, believes that “the strong monetary tightening policies by the US Federal Reserve are pressuring most currencies against the dollar. At a time when the markets are awaiting a new hike decision at this month’s meeting, most expectations support raising interest rates by 75 basis points.”
The Greens added in an interview with “Sky News Arabia” website, “On the other hand, the Central Bank of Japan is still adopting an expansionary monetary policy and negative interest that significantly pressures the yen’s performance, which ultimately causes dollar-denominated assets to become more attractive to investors.”
Variation in Japanese and US bond yields
Because of the markedly different monetary policies, the spread between US and Japanese bond yields has widened in favor of the former, which supports the continued demand for the US dollar against the Japanese yen, according to the greens, who explained that the Bank of Japan is still pursuing its policy of buying an unlimited amount of government bonds to maintain Their 10-year borrowing costs are less than 0.25 percent, creating a huge gap against US yields, which now stand at 3.3 percent.
Long fight against deflation
But is the Bank of Japan likely to start following the Fed’s footsteps? Global Markets Analyst Answers: “Price growth in Japan is much slower than in the United States, and the Bank of Japan believes it needs to do more to stabilize inflation rates for consumers and businesses after years of deflation, so the Bank believes it is too early to start tightening. monetary policy because the long fight against deflation is not over yet.”
And the Greens continue: “Despite the rise in inflation at the present time to a rate higher than the target levels of 2 percent, the governor of the Central Bank believes that these rises are unsustainable and may begin to decline again once the new fiscal year begins in April 2023, and therefore the continuation of the The yen’s decline will depend on the pace of monetary tightening by the US Federal Reserve, which may continue until the end of the year, but some interested people believe that once investors finish pricing rate hikes, the yen will start to recover again.”
It is noteworthy that the Bank of Japan has not intervened since 1998 in the currency market when it sold the dollar in exchange for the purchase of the yen to control the declines of the local currency, when the Asian financial crisis caused the sale of the yen and the flight of foreign investors’ money out of the country.
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