The yen falls to its lowest level against the dollar since 1998

The significant mismatch between the Bank of Japan's monetary policy and that of the US Federal Reserve has led to a sharp depreciation of the yen, which has reached its lowest level against the dollar since October 1998.

A gap between the monetary policy of the Bank of Japan and that of the Fed

In decline since March, the Japanese currency has been trading at its lowest levels in two decades against the dollar since mid-April. On Monday June 13, the dollar reached 135.19 yen, a record not seen since 1998.

This sharp depreciation of the Japanese currency is linked to a significant mismatch between the monetary policy pursued by the Bank of Japan (BoJ) and that of the US Federal Reserve (Fed).

Indeed, while the Bank of Japan's monetary policy remains very accommodating, with no plans to raise key rates, the Fed has already begun to raise rates in an attempt to counter inflation.

In the United States, inflation is rising rapidly, with consumer prices up 8.6% year-on-year in May, compared with 8.3% in April. Inflation has been exacerbated by the rise in oil prices since the start of the war in Ukraine, which has contributed to Japan's growing trade deficit and a fall in the yen.


Japanese households fear accelerating inflation

The Bank of Japan, as well as the country's government and major corporations, usually see benefits in a weaker yen, starting with greater competitiveness for Japanese exports and increased profits for Japanese companies abroad.

However, the Governor of the Bank of Japan recently acknowledged that a sharp fall in the yen would have a negative impact on the domestic economy, while Finance Minister Shunichi Suzuki mentioned "both positive and negative sides to the cheap yen ".

For Japanese households, whose purchasing power has been weakened by the fall in the yen and the rise in import prices, particularly for essential goods, it's becoming difficult to hear the government extoll the virtues of depreciating the Japanese currency.

The Bank of Japan, the Japanese Financial Supervisory Authority (FSA) and the Ministry of Finance issued a joint statement at the end of last week, announcing that " appropriate measures " would be taken " if necessary " to counter the yen's fall. However, monetary tightening by the Bank of Japan seems unlikely at this stage.

Inflation remains much lower in Japan than in Europe or the United States. It reached 2.1% year-on-year in April, which still represents a record level for Japan since 2015.