The US dollar traded at 125 yen on Monday. The Japanese currency weakened by more than two percent against the dollar after the Bank of Japan went against the global trend of tightening monetary policy.
The Japanese yen has already lost more than seven per cent against the US dollar over the past month. Yet on Monday alone, it wrote off over two percent and fell to a seven-year low. One dollar was trading at around 125 yen. The last time the yen was this low against the dollar was in 2015.
Bank of Japan
The markets reacted to information that the Bank of Japan would go against the general global trend of tightening monetary policy. This has fuelled speculation that Japanese central bankers could decide to intervene in the markets in favour of the yen if necessary. This is also a tool that can be used to fight inflation.
If the Bank of Japan does indeed intervene to support the yen, it will be the first time since 1998. The Bank of Japan is in an unenviable situation. The local economy has been suffering from stagnation for a long time, so it would rather need a boost from the central bank. However, inflationary pressures are now also starting to build up in Japan.
