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Some of the craziest moves in the global financial markets are centered on the yen.
The yen depreciated so much that at some point on Monday, 160 yen was worth one dollar. A few years ago, the exchange rate of the yen against the dollar was close to 100 yen. The yen was so weak that it returned to its 1990 level shortly after Japan's famous "bubble economy" burst.
During the New York trading session, the dollar once hit the level of 160 yen to the dollar. By noon on Monday on the East Coast, the dollar quickly fell back to 156 yen to the dollar. This sudden fluctuation may occur in the foreign exchange market, which is famous for its fluctuations. The closure of the Japanese stock market may also be one of the reasons for trading volatility. However, the speed and extent of the yen's fluctuations have triggered speculation about whether Japanese officials are taking measures to support the yen.
Since the Bank of Japan kept interest rates at a very low level to encourage more inflation in the Japanese economy, the yen has been under long-term pressure. Only last month did it end its policy of keeping the benchmark interest rate below zero.
The Bank of Japan made its latest interest rate decision last Friday, keeping interest rates unchanged. This has stimulated the recent weakness of the yen to some extent. Bank of America strategists said in a report of BofA Global Research that the market may have been responding to the Bank of Japan's recent commitment not to further increase interest rates, and the yen may continue to be under pressure in the third quarter of this year.
This is partly because the US economy has been stable. Because inflation and the economy are still higher than expected, people increasingly expect the Federal Reserve to keep its main interest rate high for a period of time. This has kept the yield of US treasury bonds high and brought appreciation pressure to the US dollar.
The weak yen is a good thing for American tourists to Japan, which means they can buy more yen for every dollar spent. This is also a good thing for Japanese exporters, because it increases the value of their dollar denominated sales when converted into yen.
But there are risks in keeping the yen weak. A core problem is that it may cause Japan's inflation to eventually exceed the target and damage the world's third largest economy. For example, Japan imports almost all of its energy, and oil is traded in dollars rather than yen.
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Editor in charge: Yang Chunduan
