Japanese Yen a bastion of nation’s stability.. or is it?

Japan has for several decades been considered to be a shining light to the rest of the modern world.

Its technological prowess, civilized society and conservative, process-driven ideology have led it to become one of the most advanced nations on the planet, and for the Yen to be considered by many traders to be a safe Major Currency. A currency backed by Japan’s diverse and sophisticated industry base.

The past forty years have demonstrated that Japan is a force to be reckoned with. It is an industrial giant, exporting its ultra-high tech electronics, cars, and science around the entire world and has a reputation for precision, engineering excellence and a degree of ‘cool’ that is apparent in every area of global society.

More recently, the Japanese economy has been bolstered by its government and population having not succumbed to the narrative relating to lockdowns and restrictions. Japan has remained open for business throughout the entire past 18 months, and with results which demonstrate its good decision-making.

However, as this week’s trading begins, the Yen is continuing to fall against the US Dollar.

On Friday, January 7, 2022, Japan’s Finance Minister Shunichi Suzuki spoke publicly about the need to stabilize the Yen and explained that he is watching the currency markets carefully due to the Yen’s recent declines against the US Dollar.

The US Dollar has been accelerating in value compared to the Japanese Yen for quite some time now, and now stands at 115.66 Yen to the Dollar, meaning that the US Dollar is at its highest point against the Yen in over one year.

On Tuesday last week, the US Dollar hit a five-year high against the Yen with an exchange rate of 116.355 yen to one US Dollar after strengthening on expectations that the U.S. Federal Reserve will embark on steady interest rate increases while the Bank of Japan continued to keep interest rates low.

Another factor that has possibly contributed to an increasingly weak Yen is the increasing reliance on raw material imports by Japanese companies, and the difficulties associated with semi-conductor shortages which could have blighted Japanese engineering and electronics giants, however wholesale inflation is now hitting a record high and driving up the cost of living, which in major urban areas of Japan is among the highest in the world.

Currently, Japanese policymakers see little room to intervene in the currency market to attempt to stem the decline of the Yen against the US Dollar, however this decision has been met with some degree of public discourse given that Japan currently has a weakening economy, with competitiveness slipping and dire public finances.

Japan’s government and central bank, both notoriously conservative and non-reactionary, have kept well away from intervening in the currency market since 2011 when horrendous natural disasters and the subsequent Fukushima nuclear crisis triggered volatility in the Yen.

Output is still relatively high, and it could be that local economists are relying on an uninterrupted industrial base to ride out the storm, and look toward the longer term rather than current situation.

Either way, the USDJPY pair remains an unusually volatile instrument in what is notoriously a stable major currency market which has been used to small movements for many years.