The yen continued its slide on Wednesday, falling to 135.60 yen against the dollar in morning trading, its weakest level in about 24 years.
The depreciation is the result of a widening interest rate gap with the United States, which has been raising interest rates to quell record-high inflation, while Japan has continued to implement a low-interest rate policy out of concern for an economy blighted by stagnant wages and sluggish consumption.
With the yen losing about 5 yen against the dollar in one week, alarm bells have been set off in the government and the Bank of Japan.
"We are concerned about the rapid depreciation of the yen," Finance Minister Shunichi Suzuki said at a press conference on Tuesday.
"The rapid depreciation is detrimental to the economy, making it difficult to formulate business plans," BOJ Gov. Haruhiko Kuroda said at the Diet on Monday when the yen fell to the 135 yen level against the dollar.
Monday's remarks indicated a shift in thinking at the BOJ, which until then had indicated that the yen's depreciation was generally positive for the Japanese economy because it boosted the overseas earnings of domestic companies when revenues were converted into yen.
On top of surging resource prices, the weak yen is inflating the prices of imports, which is having a knock-on effect on a wide range of goods and services.
However, there have been no signs that the BOJ will change its current monetary policy of large-scale government bond purchases.
On Tuesday, the central bank said it would increase government bond purchases in a bid to maintain low interest rates.
With an economic recovery yet to gain momentum in Japan, a review of monetary easing could lead to higher interest rates on mortgages and other loans, dampening consumption.
"There is no reason to take action [on monetary policy]," a senior BOJ official said.
The U.S. Federal Reserve Board was holding its Federal Open Market Committee (FOMC) meeting on Tuesday through Wednesday to decide monetary policy, amid speculation that the U.S. central bank would raise interest rates sharply.
The Chicago Mercantile Exchange (CME) Group's Fed Watch tool showed a more than 90% probability that the FOMC would raise interest rates by 0.75% on Tuesday.
The Fed usually raises rates in increments of 0.25%. Even a 0.5% hike is unusual. If the Fed raises interest rates by 0.75% it would be the first time in about 28 years that such a hike had been implemented. The market has already factored in the possibility of such a hike.
Although an interest rate hike would be a headwind for the U.S. housing market, consumer prices have risen by more than 8%, stoking public dissatisfaction.
Economic expansion accompanied by rising wages in the United States has made it easier for the Fed to make bold moves.
A 1% difference in interest rates between Japan and the United States will weaken the yen by about 14, yen according to NLI Research Institute Senior Economist Tsuyoshi Ueno.
Matsui Securities Senior Market Analyst Tomoichiro Kubota said: "The yen's depreciation will not change as U.S. inflation is expected to continue. If the BOJ does not change its policy, the yen will depreciate to the 140 yen level against the dollar by summer or autumn."
On the other hand, some observers think that if the United States' anti-inflation measures are successful, the overheating of the economy will subside and the rise in U.S. long-term interest rates will subside.
MUFG Bank Chief Analyst Teppei Ino said, "There is a possibility that the yen will turn from weak to strong a year from now."
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