For the first time since 1998, Japan’s central bank has sold dollars and bought yen to strengthen its currency’s value against the dollar and euro.

The yen began this year valued at $115.1. By the end of last week, it had dropped to about $1.43, a loss of roughly 20 percent. 

By the end of Japan’s trading day on Monday, 26 September, the intervention had failed to help: the yen was still trading in the neighborhood of $1.44.

The Bank of Japan (BoJ) has held tight to an interest rate of -0.1 percent in an ongoing attempt to wake up the country’s torpid economy.  

Japan is now the world’s only major economy clinging to a negative rate after the European Central Bank abandoned its -0.5 percent rate in June.

However, the low rate has contributed to inflation racing at 2.8 percent, modest by global standards but a pace not seen in Japan since 2014.

Prices are rising, in large part, because Japan imports a large number of consumer items, as well as all of its fossil fuels, which must be paid for in dollars or euros.

Also, as other central banks, including those in the U.S. and Europe, have raised rates, investors have transferred their wealth to economies supplying a higher rate of return.

Last week, central banks in England, Norway, Switzerland, and the U.S. all raised their rates again.

TREND FORECAST: Overall, The Street has turned very negative on Japan’s cheap money scheme that is forecast to make a very bad situation much worse.

Japan’s central bank is walking a thin line. The country’s population is among the world’s oldest, leaving millions of citizens on fixed incomes vulnerable to rising interest rates. However, inflation creates an equal vulnerability. Japan imports most of its raw materials, including fossil fuels. 

With inflation soaring in Europe and the U.S. and with more central banks raising interest rates, we forecast that the BOJ will be forced to raise interest rates despite the bank’s current policy.

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