Tokyo, Japan – The recent collapse of the yen against the US dollar has shed light on the consequences of Japan’s prolonged monetary policies. Despite efforts by Japanese authorities and interventions in the market to support the currency, the yen hit a 34-year low at ¥154.7 to the USD. This significant drop has been attributed to years of monetary practices implemented by the Bank of Japan (BOJ).
Since 2012, when Prime Minister Shinzo Abe introduced his economic policies known as “Abenomics,” the yen has plummeted by 50% against the USD. The excessive money printing and fiscal measures undertaken by the BOJ have led to the devaluation of the currency. The institution of Yield Curve Control in 2016, which aimed to maintain a near 0% 10-year yield, further exacerbated the yen’s decline.
The BOJ’s unconventional monetary policies, including purchasing a significant portion of the national debt with freshly created yen, have set a precedent for other central banks globally. However, the recent collapse of the yen demonstrates that there are indeed repercussions for such actions. The seemingly sustainable free-lunch theory has proven to be unsustainable, resulting in the devaluation of the currency.
In response to the currency’s depreciation, the BOJ has initiated gradual adjustments to its policies. Despite minor steps taken to reduce the destruction of the yen, the central bank remains entrenched in its previous strategies. Measures such as lifting the short-term interest rate from -0.1% to 0.0% and slowing down the purchases of corporate bonds indicate a shift in policy direction, albeit at a slow pace.
The ongoing challenges faced by the BOJ in mitigating the yen’s collapse highlight the complexities of prolonged monetary interventions. While attempts are being made to rectify the situation, the impact of years of aggressive monetary policies continues to reverberate in Japan’s financial landscape. As the currency faces further instability, the BOJ’s actions in addressing these issues will be closely monitored by market observers.