Since August 1998, the Japanese yen has fallen to its lowest level against the US dollar, which has prompted the government to consider taking action.
The increase in the dollar is due to data that suggests the world’s largest economy’s labor market is improving.
The currency pair broke through the crucial psychological threshold of 140 yen per dollar on Thursday.
While many central banks in Asia increased borrowing costs to match those in the US, Japan did not.
One of the reasons the yen has declined in value relative to the US dollar and other major currencies is because the Bank of Japan has maintained its ultra-low interest rates to stimulate economic recovery.
Foreign investment is frequently drawn by higher interest rates. The demand for and value of currencies from nations with higher interest rates rises as a result.
According to US Labor Department data released on Thursday, the number of Americans requesting new jobless benefits decreased to a two-month low, indicating that the jobs market is rebounding following the epidemic.
Due to increased buying activity, as a result, the US dollar reached a new high versus the Japanese yen at 140.23.
However, it wasn’t the only currency impacted by the strong dollar.
For the first time since October 2016, the value of the British pound dropped by about 5%.
Early in the week, the US dollar gained strength as Federal Reserve chairman Jerome Powell declared that the US central bank would keep raising interest rates.
At a yearly conference in Jackson Hole, Wyoming, Mr. Powell further stated that the Fed may maintain high rates “for some time.”
After the hawkish Jackson Hole symposium, the US dollar is the big news this week, according to Philip Wee, the senior currency economist at DBS Bank.
“More Asian central banks are now prepared to raise interest rates, some by bigger amounts than normal. This should lessen the strains brought on by the strong USD ” he added.
Japanese Finance Minister Shunichi Suzuki promised to take “necessary” action to stop the yen’s slide on Friday.
Mr. Suzuki stated at a press conference that “excessive, disorderly currency swings could have a severe impact on the economy and financial circumstances.”
However, due to the disparity in interest rates between Japan and a large portion of the rest of the world, Dwyfor Evans of State Street Global Markets warned the BBC that efforts to weaken the yen “may prove ineffective.”
The last time the Bank of Japan intervened in the currency markets was in 2011, when the Fukushima nuclear disaster was brought on by an earthquake and tsunami.
The yen has been losing ground versus the dollar and is currently trading at about 140.35 as of Friday afternoon in Asia.