Tokyo, March 16 (Jiji Press)–The yen is facing downward pressure against the dollar, raising concerns that the damage to the Japanese economy from expensive resources and commodities amid the Russia-Ukraine crisis will be amplified.
The Bank of Japan’s prolonged ultra-loose monetary policy, coming at a time when Western central banks are moving to remove stimulus to stem inflation, sent the yen falling to its lowest point in over five years in Tokyo trading this week.
The yen and the dollar, both considered safe haven currencies, drew purchases in early March after Russia invaded Ukraine, and the yen rose slightly against the dollar as a result.
But the yen fell after the European Central Bank said Thursday that it will speed the tapering of its asset purchase program, dropping to 118.45 to the dollar at one point on Tuesday amid expectations that the U.S. Federal Reserve will raise interest rates this week.
Interest rate differentials between Japan and the United States are working more in favor of the dollar, and market players “started anticipating the yen will fall further to 120 or lower to the dollar,” a currency broker said.
The weaker yen will put further upward pressure on prices in Japan as those for resources and commodities, including crude oil and wheat, have already been high because of the Ukraine crisis.
This will hurt corporate earnings if companies fail to pass on higher prices to customers, but if they do, households will be affected.
The yen’s fall will “do more bad than good” for the economy, said Kengo Sakurada, chairman of the Japan Association of Corporate Executives, or Keizai Doyukai.
BOJ policymakers are unlikely to tighten monetary policy when they meet Thursday and Friday given that Japan’s inflation stays lower than in the United States and Europe.
Any response to higher energy prices will be “for the time being focused on fiscal support” such subsidies, said Ryutaro Kono, chief economist at BNP Paribas Securities (Japan) Ltd.