Japan Props Up the Declining Yen

Japan announced on 22 Sept 2022 that it had intervened to prop up the value of the yen for the first time in 24 years, in an effort to stop the currency’s continuing slide against the dollar.

Yesterday, the yen passed 145 to the dollar after the U.S. Federal Reserve’s announcement on Wednesday that it would raise its policy rate by an additional three-quarters of a percentage point. The yen has lost over 20 percent of its value against the dollar over the past year, and it has been the worst performing currency among major developed economies this year.

Context: The yen’s plunge has largely been caused by Japan’s determination to keep interest rates low. The government’s intervention followed an announcement by the Bank of Japan that it would stick fast to its longstanding ultralow interest rate policy — even as most other countries have begun to follow the U.S. Federal Reserve’s increases.

History: For years, a weak yen was widely seen as a boon for its export-driven economy, making Japanese products cheaper and more attractive for consumers abroad.

Elsewhere: The Bank of England raised its key interest rate by half a point to 2.25 percent yesterday, the highest level since 2008. It is the latest effort to tame high inflation.