Japan on high alert as yen tumbles to 20-year low vs dollar

© Kyodo News

The Japanese government was on high alert Tuesday as the yen dropped against the U.S. dollar to levels unseen over the past 20 years, fueling fears that the nascent recovery in the economy from the coronavirus pandemic could be temporary.

"We are paying close attention to developments in the foreign exchange market and their impact on the Japanese economy," Finance Minister Shunichi Suzuki told reporters.

The yen traded around 132.60 against the dollar at 11 a.m., amid expectations that the U.S. Federal Reserve will continue to tighten monetary policy, widening the interest rate gap between Japan and the United States.

A weaker yen has led to higher import costs that have subsequently raised domestic prices at a time when Japanese workers have seen their wages rise at a very limited pace.