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Dollar Tops 100 Yen in Milestone for Bank of Japan Effort Pro-Inflation Policies Show Signs of Helping the Japanese Economy
(about 4 hours later)
Japanese authorities’ efforts to lift the moribund economy showed progress on Thursday, as the yen breached an important level against the United States dollar. TOKYO — For almost two decades Japan’s economic fortunes have deteriorated, and little seemed to be done about it.
Since taking office in late December, Prime Minister Shinzo Abe has made beating deflation a major point of his economic policy, prompting the central bank to pour money into the economy. That policy is bearing fruit, as the yen weakens against the dollar and other world currencies. But in the last few months, the nation’s new prime minister, Shinzo Abe, has pushed policy makers and other officials to take bold steps to revive one of the world’s largest economies. Their handiwork was evident Thursday when the Japanese yen briefly sank below 100 to the dollar for the first time in four years.
With the yen falling, the dollar is now valued at more than 100 yen, a level not seen in four years. Normally a weakening exchange rate might be taken as a sign of decline. The yen has fallen nearly 14 percent against the dollar this year, and no currency has fallen more except the Venezuelan bolívar. But in Japan’s case, it is a sign that the policies put in place by Mr. Abe and Haruhiko Kuroda, chairman of the Bank of Japan, are starting to work. A weaker yen makes Japanese exports more competitive around the world.
The yen’s move is kindling inflation in an economy that has long been moribund, in the process delivering a competitive boost to the country’s big exporters. The promise of reflation has also had an effect on the stock market; the Nikkei has risen throughout this year on the anticipation of laxer policy. The most immediate impact of the weaker yen has been the boost in profits of the major exporters. This week, the Toyota Motor Corporation reported net income in the last 12 months jumped threefold, and Sony produced an annual profit for the first time in five years. Both companies forecast further profit increases largely because of the weaker yen.
The Bank of Japan has moved aggressively to reinvigorate the economy and fight deflation. Perhaps more important, particularly for the citizens of Japan who have suffered from a long period of falling wages and prices, the yen’s move is expected to kindle inflation in the once moribund economy.
Last month, the central bank announced a decisive break with its earlier policies. Instead of focusing on keeping overnight interest rates close to zero – which seemed to be having little effect in reviving growth – the central bank aimed to double the amount of money in circulation, seeking to produce annual inflation of about 2 percent. Bank of Japan has moved aggressively to reinvigorate the economy and fight deflation. Last month, the central bank announced a decisive break with its earlier policies. Instead of focusing on keeping overnight interest rates close to zero — which seemed to be having little effect in reviving growth — the central bank aimed to double the amount of money in circulation, seeking to produce annual inflation of about 2 percent.
The promise to drastically change Japan’s economic policy and end the long, debilitating era of deflation has caused the dollar to rally for much of this year. By midafternoon in New York, the dollar was valued at 100.53 yen. “This is new territory for the Bank of Japan, and the market is responding to that,” said Aroop Chatterjee, foreign exchange strategist at Barclays Capital in New York. “The Bank of Japan announced very strong monetary policy easing at the start of April.”
With this move, the yen has fallen nearly 14 percent against the dollar this year. The only currency that has fallen by more is the Venezuelan bolívar. However, he said the more immediate trigger for the rate to cross Thursday’s threshold was signs of strength in the United States economy.
Japanese officials say the policy does not overtly target a lower yen rate, which could raise tensions with other exporting nations like the United States. But a weaker yen is a welcome development in some ways. A number of large Japanese companies have reported banner profit in recent weeks, driven in part by the drop in the currency.
On Wednesday, Toyota reported net income of 313.9 billion yen, or $3.17 billion, in its latest quarter, as the value of its overseas earnings increased in its home currency and production in Japan became more cost-efficient. Sony also cited the yen in its latest earnings report.
The efforts by the Bank of Japan to continue to flood the economy with liquidity is likely to keep downward pressure on the yen in the coming months. The central bank is following an asset purchase program to inflate the economy by aggressively buying longer-term bonds and doubling its government bond holdings in two years.The efforts by the Bank of Japan to continue to flood the economy with liquidity is likely to keep downward pressure on the yen in the coming months. The central bank is following an asset purchase program to inflate the economy by aggressively buying longer-term bonds and doubling its government bond holdings in two years.
The depreciation of the yen may be a step in the right direction as the authorities try to fuel some growth. However, Japan still faces many stiff challenges until it breaks out of its period of deflation. It has an aging and shrinking population and cumbersome regulations that make the economy inefficient, and it is not clear that monetary policy alone can end stubborn deflation in Japan. By early morning in Tokyo, the dollar was valued at 100.58 yen.
As he has tried to put a new focus on reviving the economy, Mr. Abe fought with the central bank’s former leaders over setting the 2 percent inflation goal. Mr. Abe’s pressure in the end led to the resignation of the bank’s previous governor, the moderate Masaaki Shirakawa. His departure led to the appointment of Haruhiko Kuroda, who shares Mr. Abe’s economic philosophy. Japanese officials say the policy does not overtly pursue a lower yen rate, which could raise tensions with other exporting nations like the United States. But a weaker yen is a welcome development in some ways.
As it pursues its new policy, the Bank of Japan is buying longer-term government bonds, lengthening the average maturity of its holdings to seven years from three years and expanding Japan’s monetary base to 270 trillion yen by March 2015. The depreciation of the yen may be a step in the right direction as the authorities try to stimulate some growth. However, Japan still faces many stiff challenges until it breaks out of its period of deflation. It has an aging and shrinking population and cumbersome regulations that make the economy inefficient.
In this way, the bank will buy about 7 trillion yen in bonds each month, equivalent to over 1 percent of its gross domestic product. That is almost twice the bond purchases of the United States Federal Reserve Bank. As Mr. Abe has tried to put a new focus on reviving the economy, he has also fought with the central bank’s former leaders over setting the 2 percent inflation goal. Mr. Abe’s pressure in the end led to the resignation of the bank’s previous governor, the moderate Masaaki Shirakawa. His departure led to the appointment of Mr. Kuroda, who shares Mr. Abe’s economic philosophy.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, said some in the market were speculating that the yen had been driven lower by non-Japanese investors. Those investors were anticipating that cash-rich Japanese investors were finally going to start selling their yen holdings to buy American and other foreign bonds in a hunt for higher yields outside Japan.
Of course, while the weaker yen is good for Japanese exporters, it makes imported products more expensive. That in turn can make selling foreign goods there harder.
In a statement, the American Automotive Policy Council reacted strongly to Thursday’s milestone. “The depth of Japanese currency manipulation has reached a new low,” said Matt Blunt, the council’s president. He said the yen’s weakening will cost American exports and jobs.

Hiroko Tabuchi reported from Tokyo and Graham Bowley from New York.