Last week, the US dollar continued its fall against the Japanese yen, sliding to a 14-year low.
The falls led to Japan’s finance minister, Hirohisa Fujii, to say that the Government is monitoring the yen but did not suggest immediate intervention.
While a strong yen is good news for the economy, it makes Japanese exports less competitive - but means imports are more affordable to Japanese consumers. Exports are a key to the economy‘s recovery.
As a result, there have been speculation that Japan’s Government may step in to stem the yen’s appreciation but this is not something it’s done since March 2004.
However, today the Japanese currency fell slightly after the country’s strategy minister, Naoto Kan, said the Government has agreed to implement measures that will stop the rise of the yen.
However, no details have been provided as to what action is to be taken.
Many suggest that the country may return to quantitative easing - otherwise known as printing money - a move which has been implemented by the UK Government.
The Bank of Japan implemented quantitative easing in March 2001 in an attempt to boost the economy.
In the meantime, there are concerns for the world’s no.2 economy after Naoto Kan recently acknowledged that deflation has returned for the first time since 2006.
A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices.
Deflation was a problem for Japan during its so-called “Lost Decade” in the 1990s.
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