Photo/Illutration The yen continues to weaken against the dollar in Tokyo on Oct. 14. (Wataru Sekita)

The yen fell to a 32-year low against the dollar in New York on Oct. 13, prompting expectations among investors of another intervention by Japan to prop up its currency.

At one point, the dollar rose to the upper 147-yen range on the New York foreign exchange market, a level not seen since 1990.

Since the U.S. Federal Reserve Board started raising interest rates in March, the Japanese currency has depreciated by 32 yen against the greenback.

The latest slide in the yen was triggered by a report released by the U.S. Department of Labor on Oct. 13 that said the Consumer Price Index for September increased by 8.2 percent from the same month in the previous year.

The rise surpassed forecasts and heightened speculation that the FRB will continue to raise interest rates to contain inflation.

By contrast, Japan has kept interest rates low and shows no signs of moving away from its monetary easing policies.

This has widened interest rate gap between Japan and the United States and accelerated the trend to sell yen and buy dollars.

The government and the Bank of Japan on Sept. 22 intervened in the market for the first time in 24 years to shore up the yen.

But since then, the yen has slid by 1.70 yen against the dollar. Some investors are expecting another intervention.

WEAKER YEN HITTING CONSUMERS

The BOJ on Oct. 13 said the Producer Price Index rose by 9.7 percent in September from the same month in the previous year, the second largest increase since 1981, the year comparable data became available.

It was the 19th consecutive month of year-on-year increases for the index, which represents prices of goods sold and bought between companies.

The major reason for the rising PPI is the weaker yen.

If the Import Price Index is calculated using prices converted into yen, it surged by 48 percent in September year on year.

But if the same index is based on prices in contract currencies, such as the dollar, it rose by only 21 percent over the same period.

These figures mean the weaker yen has more than doubled the increase in prices of imported goods.

Earlier this year, 20 to 29 percent of the price rises for imported goods were attributed to the declining yen, according to BOJ data. The ratio has now risen to more than 50 percent because of the further depreciation of the yen.

For Japanese companies that use yen to buy imported materials and other products, the weaker Japanese currency has become more of a financial burden than the actual price hikes for the resources.

More companies are passing on the rise in purchasing costs to prices of daily-use products.

Japan’s Consumer Price Index rose by 2.8 percent in August year on year, the largest increase in 30 years and 11 months, excluding periods impacted by hikes in the consumption tax rate.

Analysts say households will be under further pressure if the current situation, in which wage increases fail to match price hikes, continues.

(This article was written by Takao Shinkai in New York and Shinya Tokushima in Tokyo.)

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