Yen tumbles to two-decade low

The yen hit its lowest level against the dollar in two decades on Wednesday, extending recent falls as the gap widens between Japan's ultra-loose monetary policy and US tightening.

Despite being traditionally considered a safe-haven currency, uncertainty fuelled by the war in Ukraine has not caused the yen to strengthen.

Instead, moves by the US Federal Reserve towards a more aggressive policy and the shock of rising oil prices in Japan - a major importer of fossil fuels - have pushed the currency lower, analysts say.

One US dollar bought 126 yen yesterday afternoon, the lowest rate since 2002.

The drop came after the Bank of Japan Governor Haruhiko Kuroda warned the recent rise in inflation driven by higher import costs could hurt the economy, stressing the central bank's resolve to keep monetary policy ultra-loose.

Consumer inflation is likely to clearly accelerate as energy prices rise sharply and companies steadily pass on higher raw material costs to households, Kuroda said.

While the BOJ chief said the world's third-largest economy was expected to recover as consumption shows signs of improvement, and robust overseas demand underpin exports, he also warned of risks.

"The outlook, however, remains highly uncertain due to the impact of the pandemic, as well as developments regarding Ukraine and the impact on commodity prices," Kuroda said in a speech to an annual meeting of trust banks.

He stressed the need to maintain the BOJ's massive stimulus to support an economy yet to recover to pre-pandemic levels.

"Recent rising inflation, driven by higher import costs, weighs on Japan's economy by reducing households' real income and corporate profits," Kuroda said.

Finance Minister Shinichi Suzuki jawboned markets against pushing down the yen too much, saying earlier that rapid moves in the yen were "undesirable."

Swiss Bank UBS said a weaker yen would likely hit Japanese households' purchasing power and domestic-oriented small businesses that will face higher import costs.