500 Yen – Japan

In 2021, Japan's currency situation was characterized by a persistent and politically challenging trend of yen weakness against the U.S. dollar, driven by a stark divergence in monetary policy. While the U.S. Federal Reserve signaled a shift towards tightening in response to rising inflation, the Bank of Japan (BOJ) maintained its ultra-loose monetary stance, including negative short-term interest rates and yield curve control. This policy gap widened the interest rate differential between the two nations, making the dollar more attractive to investors and pushing the yen to multi-year lows, briefly breaching the ¥114 to the dollar mark by year's end.

This depreciation presented a complex economic picture for Japan. On one hand, it boosted the profitability of major exporters like automotive and electronics firms by increasing the yen value of their overseas earnings. On the other hand, it significantly raised the cost of essential imports, particularly energy and food, which are priced in dollars. This imported inflation squeezed household budgets and corporate margins for non-exporting sectors, creating a headache for policymakers as core consumer price inflation remained stubbornly below the BOJ's 2% target for most of the year, despite the rising costs.

Consequently, the Japanese government and the BOJ found themselves in a delicate balancing act. Officials frequently expressed concern over the rapid pace of yen declines but refrained from direct intervention in the currency markets, a tool last used in 2011. The BOJ, under Governor Haruhiko Kuroda, consistently reaffirmed its commitment to powerful monetary easing to support a fragile economic recovery from the COVID-19 pandemic, prioritizing domestic growth over currency strength. Thus, 2021 ended with the yen's weakness entrenched as a byproduct of Japan's steadfastly accommodative policy in a world beginning to shift toward normalization.