Japan appears to be experiencing déjà vu from 2022: energy prices are soaring, the yen is hitting new lows, and the country’s finance minister is warning of possible interventions in the foreign exchange market.
In fact, the first round of intervention may have already taken place last Friday, reportedly totaling about 5.4 trillion yen (approximately $34.5 billion), although the impact was not exactly dramatic: USD/JPY fell by about 2.7% at the time, but as the new week began, the upward trend resumed
But why is a weak yen such a bad thing? Doesn’t it help exports? The main problem with a weak yen is its overall impact on the economy.
Rising energy and food costs place a burden on households, while a potential tightening of the Bank of Japan’s monetary policy could exacerbate both the budget deficit and the cost of servicing the country’s massive public debt. On a global level, a sudden shift in interest rate expectations or a jump in yen confidence could trigger a sharp rebound. That would hit the yen carry trade, potentially weighing on the S&P 500, Nasdaq, and Dow Jones .