How far has the yen depreciated by 21 yen in half a year? [Economic column]

The depreciation of the yen does not stop.

In the foreign exchange market this week, the yen's exchange rate temporarily dropped to the 137 yen level for the first time in about 24 years from the view that the United States will continue to tighten monetary policy aggressively.

In the last six months, the yen has depreciated by 21 yen and the dollar has strengthened, and the rate of decline in the six months has been the largest since 1998, when the Bank of Japan has a record.

Concerns are growing among businesses and households over the depreciation of the yen, which pushes up import prices.

How far will this depreciation of the yen go?

(Hidetoshi Inomata, Reporter, Ministry of Economic Affairs)

Unable to cope with rapid cost increases in a short period of time

"The yen is depreciating more than expected. The cost has increased sharply in the last six months, and I have no time to prepare and I can't raise the price immediately, so I have to endure it.

" This is the word of the president.

This manufacturer imports 200 kinds of parts and materials from overseas such as the United States and Germany so that we can always provide products to those who need artificial legs.

However, due to the rapid depreciation of the yen, the purchase price has risen by 20%.

Prices of raw materials such as aluminum and iron are also rising, putting pressure on profits.

Manufacturers are considering passing it on to the selling price, but in order to raise the price of parts such as artificial legs, it is necessary to obtain national approval.

Even if it is approved, the price can actually be raised in April next year.

At present, it is said that there is no choice but to make ends meet while trying to reduce costs through corporate efforts.

Soaring import prices, which weigh heavily on the management of small and medium-sized manufacturers.

As the yen depreciates sharply in a short period of time, some companies are not able to respond in time.

Yen falls at record speed

In the foreign exchange market this week, the yen exchange rate temporarily dropped to the 137 yen level per dollar for the first time in about 24 years.

And the yen exchange rate as of 5 pm on the 30th of the last day of the first half was from 136.19 yen to 21 yen per dollar.

In the six months since the end of last year, which was in the low 115 yen range, the price has dropped by about 21 yen.

Looking at the data from the Bank of Japan since 1998, when records are recorded every business day, as of 5 pm, it was the largest drop in price for half a year.

Behind the depreciation of the yen in such a short period of time is the difference in the direction of monetary policy between Japan and the United States.

Interest rates are rising in the United States, which is rushing to tighten monetary policy to curb inflation.

On the other hand, the Bank of Japan is holding down interest rates through large-scale monetary easing.

From the view that the composition of widening interest rate differentials will not change for the time being, the movement to buy dollars with higher yields and sell yen has continued.

In the past, the yen has depreciated rapidly.

2013 and 2015.

In 2013, the inauguration of Governor Kuroda of the Bank of Japan was the trigger.

The yen depreciated at a stretch by launching a large-scale monetary easing policy to supply a large amount of funds to the market called "Kuroda Bazooka".

In 2015, a major factor was the move by the United States to lift the zero interest rate policy that had continued since the Lehman shock.

In both cases, the market has captured the changes in the tide of monetary policy and created large fluctuations in exchange rates.

Central banks in Europe and the United States are now rushing to tighten monetary policy in response to global inflation associated with the resumption of economic activity from the new Corona and soaring resource prices due to Russia's military invasion of Ukraine.

However, the risk of a sudden cooling of the economy due to rapid monetary tightening is beginning to be pointed out.

Where will global inflation subside?

How far will Western monetary tightening go?

And how long will the Bank of Japan continue its current large-scale monetary easing?

Every move of the central banks of each country is drawing attention in the market.

Is the yen depreciating further in the second half?

1 dollar = 145 yen

This record depreciation of the yen.

What do market participants think about future trends?

Market official 1

"We expect the yen to depreciate against the dollar due to the widening interest rate differential between Japan and the United States due to the rapid rate hike in the United States, and the yen may depreciate to 145 yen per dollar by the end of the year. The dollar-yen pair will reverse if the US economy becomes more decelerating and the US interest rate cut is conscious.

Market officials 2 "We expect

the dollar to be around 133 yen." 2

"Because the FRB is serious about curbing inflation and a large interest rate hike is factored in the market, the Bank of Japan has shown a strong stance to maintain monetary easing. There is more room for the yen to depreciate against the dollar, and the yen may depreciate to 142 yen per dollar by the end of the year. I think inflation will settle down somewhat as the constraints are gradually lifted. I think it will be easier for the yen to strengthen and the dollar to weaken next year.

" Is increasing.

In Japan, which relies on imports for food and energy, the depreciation of the yen, which pushes up import prices, has a major impact on our lives.

Therefore, it seems necessary to carefully monitor exchange rate fluctuations, central bank movements, and changes in tides.

Scheduled to pay attention

The minutes of the June meeting of the US Federal Reserve Board, which decided to raise interest rates significantly on the 7th, will be released.

It will be interesting to see what kind of discussions took place regarding the pace of monetary tightening in the future.

US employment data released on the 8th will be of interest to see if the unemployment rate will recover to pre-Corona levels.

The 10th is the voting day for the Upper House election.

While measures against high prices are one of the issues, we are paying attention to the results of elections that will affect the Japanese economy in the future.