Japan should not intervene to slow the yen’s decline

THE Japanese yen has fallen sharply against the dollar this year. Its roughly 15 per cent decline is twice that of the euro. Markets are abuzz. Should Japan intervene to staunch the yen’s decline? No. Will Japan intervene? I’m sceptical for now.

The yen is falling for obvious reasons. The Federal Reserve is tightening while Japan is not changing the stance of its highly accommodative monetary policy. Interest differentials favouring dollar placements against the yen are sharply widening. Japan is highly dependent on foreign energy but the US is self-sufficient.

Notwithstanding, there is a hue and cry from the Japanese public about the weakening yen. It isn’t keen about surging energy prices and is focused in part on yen weakness, even if not the root of the issue. With Upper House elections in July, the government is keenly sensitive to public concerns.