Japan’s currency weakened past the 159-per-dollar mark after the country’s latest growth figures fell short of expectations, reinforcing doubts about the strength of the Japanese economy and complicating the Bank of Japan’s plans to move away from its ultra-loose monetary policy.
The Japanese yen retreated against the U.S. dollar in recent trading, slipping past the 159 level after Japan released gross domestic product data that missed forecasts. GDP measures the total value of goods and services an economy produces — and a softer reading suggests Japan’s recovery remains fragile.
The disappointment matters beyond Japan’s borders because the Bank of Japan has been under pressure to raise interest rates and step back from years of historically low borrowing costs. Weak growth makes that harder to justify. When a central bank is less likely to raise rates, its currency tends to lose appeal to global investors seeking better returns elsewhere, which is part of what pushed the yen lower.
Japan’s currency has been on a long slide in recent years as the Bank of Japan held rates near zero while the U.S. Federal Reserve and other major central banks raised theirs sharply to fight inflation. That interest-rate gap has weighed heavily on the yen, making dollar-denominated assets more attractive by comparison.
A weaker yen is a double-edged development for Japan. It can boost exporters, whose overseas earnings are worth more when converted back into yen. But it also raises the cost of imported goods — especially energy and food — putting pressure on Japanese households and businesses.
For currency markets, the 159 level is being watched closely. Should the yen weaken further, traders and analysts will be looking for any signs that Japanese authorities might intervene in currency markets, as they have done in the past when they judged moves to be excessive. Japanese officials have a history of stepping in verbally or directly to slow sharp yen declines.
The Bank of Japan’s next policy signals and any further data on Japanese growth will be key in determining whether the yen can find a floor.
