BUSINESS: Yen falls to 24-year low against dollar

The Japan­ese yen fell to its low­est lev­el since August 1998 against the dol­lar, prompt­ing the gov­ern­ment to con­sid­er tak­ing action.

The dol­lar rose on data sug­gest­ing the labor mar­ket in the world’s largest econ­o­my is recovering.

On Thurs­day, the cur­ren­cy pair broke above the key psy­cho­log­i­cal lev­el of 140 yen against the US dollar.

While many Asian cen­tral banks have fol­lowed the U.S. in rais­ing bor­row­ing costs, Japan has not fol­lowed suit.

The Bank of Japan has kept inter­est rates ultra-low to sup­port the eco­nom­ic recov­ery, which has con­tributed to the depre­ci­a­tion of the yen against the US dol­lar and oth­er major currencies.

High inter­est rates tend to attract for­eign invest­ment. This will increase demand and increase the val­ue of the cur­ren­cy of coun­tries with high inter­est rates.

The num­ber of new Amer­i­cans fil­ing unem­ploy­ment ben­e­fits fell for the first time in two months, the U.S. Depart­ment of Labor said Thurs­day, sug­gest­ing the labor mar­ket is recov­er­ing after the pandemic.

This trig­gered the buy­ing of the US dol­lar, and the exchange rate against Japan hit a new high of 140.23.

But the dol­lar’s strength isn’t the only cur­ren­cy affected.

Ster­ling fell around 5% for the first time since Octo­ber 2016.

Ear­li­er in the week, US Fed­er­al Reserve (Fed) Chair­man Jerome Pow­ell said the US cen­tral bank would con­tin­ue to raise inter­est rates in the com­ing months, boost­ing the US dollar.

Pow­ell added at the annu­al meet­ing in Jack­son Hole, Wyoming, that the Fed could keep rates high “for some time.”

“The dol­lar has been stronger this week because the forum in Jack­son Hole has been so hawk­ish,” Philip Wee, cur­ren­cy econ­o­mist at DBS Bank, told the BBC.

“From here onwards, more Asian cen­tral banks will hike rates, some more than usu­al, which will help off­set some of the pres­sure from a stronger dol­lar.” added.

On Fri­day, Japan’s Finance Min­is­ter Shu­nichi Suzu­ki said the coun­try would take “appro­pri­ate” steps to deal with the weak­er yen.

“Exces­sive and chaot­ic exchange rate fluc­tu­a­tions can have a neg­a­tive impact on the econ­o­my and finance,” Suzu­ki said at a press conference.

But Dwyfor Evans, of State Street Glob­al Mar­kets, told the BBC that mea­sures to com­bat the strong yen “could be wast­ed” due to inter­est rate dif­fer­en­tials in Japan and the rest of the world.

The Bank of Japan last inter­vened in the for­eign exchange mar­ket in 2011, fol­low­ing the Fukushi­ma nuclear dis­as­ter caused by the earth­quake and tsunami.

By noon on Fri­day in Asia, the yen con­tin­ued its decline, trad­ing around 140.35 against the dollar.