Japan’s yen dropped to its lowest point in 34 years against the U.S. dollar on April 26, bolstered by the economic conditions as well as the monetary policies of both countries’ central banks.
In the New York foreign exchange market, the yen briefly fell to 158.44 yen per U.S. dollar, the lowest level since May 1990.
The international market has reacted strongly to the development, with former President Donald Trump expressing concern about the depreciation of the yen, believing it will harm the U.S. economy.
The depreciation of the yen against the U.S. dollar was influenced by two main factors.
Firstly, the Bank of Japan announced its intention to maintain the current loose monetary policy.
Secondly, the Personal Consumption Expenditures (PCE) Price Index in the United States rose by 0.3 percent in March. The PCE Price Index is an inflation measure tracked by the Federal Reserve. Monthly readings of 0.2% over time are necessary to bring inflation back to the target.
Additionally, due to strong inflationary pressures, the market predicts that the Federal Reserve will delay interest rate cuts. This is further contributing to the depreciation of the yen against the U.S. dollar, primarily due to the significant interest rate differential between the U.S. dollar and the yen.
Japan’s Monetary Policy
At the monetary policy meeting on April 26, the Bank of Japan unanimously decided to maintain its near-zero interest rate policy, with the short-term interest rate target remaining at the current 0 percent to 0.1 percent. Additionally, the central bank will continue to purchase government long-term bonds.On the same day, Bank of Japan’s governor, Kazuo Ueda, stated at a press conference that the recent depreciation of the yen has not had a “significant impact” on prices. Due to the central bank’s lack of a proactive stance towards further rate hikes, the yen continued to depreciate on that day.
Furthermore, in the economic and price outlook released by the Bank of Japan after the meeting, the inflation rates for 2024 and 2025 were raised, with the inflation rate for this year being revised from the previous forecast of 2.4 percent in Jan. to 2.8 percent. This mainly reflects factors such as rising oil prices and increased electricity prices. The inflation rate for 2025 was raised from the previous 1.8 percent to 1.9 percent, and the inflation rate for 2026 was forecasted to be the same as 2025, at 1.9 percent.
Benefits to Japan’s Export Industries
The depreciation of the yen brings additional profits to Japanese exporters. A country poor in natural resources such as Japan relies on trade for its economy, with exports of cars and electronics supporting the Japanese economy for a long time. Until 2000, Japan’s foreign trade was mostly in surplus. However, in recent years, due to rising prices of crude oil and minerals, Japan’s trade and service sector continued to run deficits.Honda saw its sales in North America increase in the first quarter of 2024, with profits growing by 60 percent compared to the previous period, reaching 1.25 trillion yen (US$78.94 billion), a historical high.
Japan’s largest car manufacturer Toyota’s total assets also reached a new historical high in Jan. Those are examples of the benefits from the depreciation of the yen.
However, Japanese companies that rely on imports may face difficulties during the depreciation of the yen.
Historically, fluctuations in exchange rates are normal economic occurrences. However, entrepreneurs generally favor relatively stable exchange rates, which are conducive to long-term business operations.
The significant depreciation of the yen benefited Japan’s export industries, which naturally impacted Japan’s largest trading partner, the United States.
Trump’s Concerns and Strategies
President Donald Trump responded to the rapid depreciation of the yen on Truth Social and expressed concern, calling it a “disaster” that would harm U.S. manufacturers, forcing them to move factories overseas.He said, “When I was President, I spent a lot of time telling Japan and China, in particular, you can’t do that.”
President Trump explained that American businesses will not be able to compete, which would force them to relocate their businesses and manufacturing plants overseas.
Due to the high interest rates of the U.S. dollar, a large amount of foreign capital has flowed into the United States, leading to a general increase in the exchange rates of the U.S. dollar against currencies such as Korea’s won and the China’s yuan.
According to the Wall Street Journal, President Trump’s advisers are drafting proposals to reduce the independence of the Federal Reserve so that if he is re-elected, he can participate in formulating monetary policies.
President Trump has explicitly stated his preference for low-interest rates and has actively sought to correct the appreciation of the U.S. dollar, which has caused significant trade deficits.
Current Federal Reserve chairman Jerome Powell was nominated by President Trump during his presidency, but Mr. Powell failed to lower interest rates, leading to Mr. Trump questioning his competency.
Mr. Powell’s term expires in May 2026, and he has stated that he will not seek reappointment.
