The yen was trading at 123.77 per US dollar on Wednesday morning in Asia.
The Japanese currency fell more than 5% against the dollar in March, although the yen has traditionally been considered a safe haven currency. However, the yen was hit hard as geopolitical turmoil, such as the war between Russia and Ukraine, turbulent global markets.
The yen’s weakness comes amid expectations that the Bank of Japan will be slower than other central banks to tighten monetary policy.
Sakakibara, who was previously referred to as “Mr. Yen” when he led multiple currency interventions during the 1990s, said current levels of the yen against the dollar would not be a problem. He noted that the dollar-yen traded between 120 and 125 about four or five years ago.
A Japanese national flag flies outside the Bank of Japan headquarters in Tokyo, Japan, on September 27, 2021. Years ago, the Bank of Japan adopted a super-easy monetary policy in a bid to achieve an ever-elusive inflation target.
Toru Hanai | Bloomberg | Getty Images
“This drop in the yen is a reflection of the dollar’s appreciation against the yen and the market is expecting the yen to likely continue to depreciate and some people are expecting the dollar-yen rate to go up to 130,” said Sakakibara, current president at the Indiana Institute of Economics. Economic Studies.
“If the number goes up to 130 – and beyond 130 – that could lead to some problems,” he told CNBC. ‘Squawk Box Asia’ Tuesday. He added that the Bank of Japan would “be alarmed” if the dollar-yen rate exceeded 130.
Bank of Japan Governor Haruhiko Kuroda said on Tuesday that the recent moves of the Japanese currency have been “fairly rapid” but emphasized that a weak yen is helping the Japanese economy as a whole, Reuters reported.
Under Kuroda’s leadership, the Bank of Japan has for years adopted ultra-easy monetary policy in an effort to achieve its all-time elusive inflation target.
“I don’t see the BoJ being particularly bothered by that if it keeps its inflation target front and center,” said Manpreet Gill, head of fixed income, currency and commodity strategy at Standard Chartered Private Bank.
He said the current situation is already helping the BoJ bring in inflation, although that may not last because the recent weakness in the yen has been driven by the strength of the dollar, and several interest rate increases by the Fed have already been taken into account.
Meanwhile, Galvin Shea of Nat West Markets said the Bank of Japan is currently in a “difficult situation”.
“Markets have really jumped to this idea, you know, as we’ve seen over the last couple of weeks, that the yen should go down,” said Shea, an emerging markets analyst.
“My personal view is that the BOJ is more concerned about the pace [the yen’s] depreciation … and the kind of fluctuations that may arise around the financial markets in contrast to the level.”
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