The Bank of Japan is one of the world’s few remaining central banks maintaining rock-bottom rates. Image Credit: Reuters

The yen weakened to a fresh two-decade low after Bank of Japan governor Haruhiko Kuroda vowed to keep monetary policy loose in order to support an economic recovery, fueling speculation over whether Japanese authorities would step in once more to prop up the currency.

The yen quickly fell to 146.86 per dollar after Koruda’s comments on Wednesday, surpassing the 145.90 level that had previously prompted Japan’s nearly $20 billion intervention to buy the yen in September, the first intervention to support the currency since 1998.

“We have to continue our monetary easing until we achieve the 2 per cent target in a sustainable and stable manner,” Kuroda said at an event at the Institute of International Finance in Washington. “The economy is still recovering from the pandemic so we have to continue to support the economy to recover.”

Earlier this week, Japanese Prime Minister Fumio Kishida also signalled his support for the Bank of Japan’s ultra-easy monetary policy despite the yen’s plunge this year, the Financial Times reported.

The Bank of Japan is one of the world’s few remaining central banks maintaining rock-bottom rates while the majority of its peers are aggressively lifting rates to combat inflation and keep pace with the Federal Reserve’s tightening regime.

Koruda’s comments re-emphasised the central bank won’t be pivoting from its loose policy anytime soon. That sharpens the policy divergence between the BOJ and the Federal Reserve. Rate markets are betting that the Fed will raise rates by at least 150 basis points by the first quarter.

That will likely create more pain for the yen in the meantime, especially as strategists forecast this year’s already unrelenting US dollar will strengthen more as the Fed keeps on its quest to quash inflation.