TOKYO: The yen has hit its lowest level against the dollar in two decades, extending recent falls as Japan's monetary policy and US tightens its grip on the dollar.
The uncertainty that has been fuelled by the war in Ukraine has not caused the yen to strengthen, despite being traditionally considered a safe-haven currency.
The dollar has fallen because of the moves by the US Federal Reserve towards a more aggressive policy and the shock of rising oil prices in Japan, a major importer of fossil fuels, according to analysts.
The lowest rate since 2002 was reached by one dollar buying 126 yen on Wednesday afternoon.
The Japanese yen has been one of the weakest and most stable currencies in the world this year, according to a recent commentary by Dutch banking group ING.
The rally was the perfect storm of a hawkish Federal Reserve, a dovish Bank of Japan BoJ and Japan's negative terms of trade shock as a major fossil fuel importer. Hirokazu Matsuno said that the stability of exchange rates is important and that they see rapid currency moves as undesirable We will monitor trends in the foreign currency market and the impact on the Japanese economy with a sense of urgency.
After four years of steady strengthening, the yen had lost 10 per cent of its value against the dollar in 2021.
The US central bank has stepped up American treasury yields, which have strengthened the dollar against the dollar, as a result of an aggressive tightening path.
Bank governor Haruhiko Kuroda said earlier on Wednesday that its moves stand in contrast to the Bank of Japan'sBank of Japan's ultra-loose monetary policy, which will be maintained for now.
The Bank of Japan will try to achieve its 2 per cent inflation target by reversing its current powerful monetary easing, he said, due to the economy and price situation.
Swiss Bank UBS said a weaker yen would hit Japanese households' purchasing power and domestic-oriented small businesses who will face higher import costs.
The government is going to expand the support, and it will most likely expand the supports. We think the yen purchase intervention is possible if the pace of depreciation is too fast, it said in a note.
Tohru Sasaki, head of Japan Market Research at JPMorgan Chase Bank, told AFP that the Bank of Japan has to do something to slow the rate of the yen's depreciation. He said that it would be strange if the finance ministry did so while the Bank of Japan keeps its current easing policies.