Bank of Japan Governor Kazuo Ueda recently made headlines by unveiling plans for the issuance of new banknotes as the Japanese yen faced mounting pressure, losing over 20% of its value against the dollar since the beginning of 2022. Despite multiple interventions by Tokyo to support the currency, with April and May 2024 seeing further efforts, the yen hit a 38-year low of 161.96 against the dollar on July 3. Suspicions arose that Japan intervened once more in mid-July to halt the yen's slide.
The yen's recent shift in direction, strengthening against the dollar following the Bank of Japan's decision to raise interest rates at the end of July, marked a significant change in its trajectory. This move, coupled with concerns over U.S. economic growth, has sparked volatility in global stock and bond markets while causing investors to unwind carry trades, wherein they borrow funds in yen for investments in higher-yielding assets.
The fluctuations in the yen's value are crucial due to its historical role as a low-cost funding source for global investors, albeit against a backdrop of rising borrowing costs in other countries. Noteworthy is Japan's prior practice of intervening in the currency market to prevent the yen from appreciating too sharply, a strategy that shifted in 2022 following a plunge in the currency amid expectations of prolonged ultra-low interest rates by the Bank of Japan amidst global monetary tightening. The intervention typically involves the Ministry of Finance’s decision to buy or sell yen, often against the dollar, with the Bank of Japan executing these actions.