Photo/Illutration The Bank of Japan building in Tokyo’s Chuo Ward (Asahi Shimbun file photo)

The yen continued to fall in value against the U.S. dollar on April 20, and market players said there are no signs of anything on the horizon that can prop up the Japanese currency.

The yen for the first time in nearly 20 years slid to 129 per dollar on the Sydney foreign exchange market on April 20. That followed a plunge to 128.90 yen per dollar in trading a day earlier on the New York foreign exchange market.

On the morning of April 20, the Bank of Japan announced it would offer to buy an unlimited amount of Japanese government bonds at a fixed rate to prevent a rise in long-term interest rates.

Some financial experts pointed out that this operation could accelerate the fall of the yen, but there was no immediate notable reaction to the BOJ’s announcement in the currency market.

A series of meetings that could affect exchange rates are scheduled in Japan and the United States in the next few weeks.

But market analysts say they expect the yen to remain weak against the greenback for the time being.

Finance Minister Shunichi Suzuki is scheduled to attend the G-20 meeting of finance ministers and central bank chiefs in Washington on April 20, and will hold separate talks with U.S. Treasury Secretary Janet Yellen.

One measure the Japanese government could take to strengthen the yen is to sell dollars it owns and buy up yen in the market. But for such a market intervention to be effective, Japan would need cooperation from the U.S. government.

Although market players will be watching if Suzuki and Yellen discuss foreign currency rates, few of them expect joint intervention by the two governments.

The main reason is that inflation is rising much higher in the United States than in Japan.

In March, the U.S. consumer price index jumped 8.5 percent--the biggest year-over-year increase in around 40 years.

The U.S. Federal Reserve Board just raised interest rates in March for the first time since 2018, and intervening in the market by selling dollars and buying yen would lead to higher prices for imported goods.

In fact, Yellen told Senate lawmakers in January last year that she would “oppose any and all attempts by foreign countries to artificially manipulate currency values.”

Hidenori Suezawa, an analyst at SMBC Nikko Securities Inc., said Japan has other options available.

“The yen is falling because of the difference in interest rates between Japan and the United States,” he said. “While Japanese interest rates are curbed to near zero, interest rates in the United States are rising.”

Suezawa added, “If Japan needs to take measures about price rises, it can do so just with monetary policies.”

The Bank of Japan’s monetary policy meeting is scheduled for April 27 and 28.

However, market players expect the meeting to end with no yen-bolstering changes in the central bank’s policies.

The Japanese economy is still recovering from damage caused by the COVID-19 pandemic. If the BOJ moves away from its monetary easing policy to stop the fall of the yen, it could end up hurting the economic recovery.

BOJ Governor Haruhiko Kuroda has recently expressed more concern about the yen’s depreciation, but he maintains that a weaker yen is generally positive for the economy.

The Federal Open Market Committee, which is responsible for U.S. monetary policies, will hold a meeting on May 3 and 4 that could cause the yen to drop even further.

If the committee hints that it needs to increase interest rates faster or higher than market observers are predicting, U.S. long-term interest rate could rise, prompting more dollar-buying and yen-selling.

“The reasons for predicting that the yen will rise are disappearing,” an economist of a major think tank said. “We can only hope that the dollar will stop appreciating.”

(This article was written by Eisuke Eguchi and Rui Hosomi.)

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