While the yen’s sharp drop over the past two days has driven the Nikkei to near seven-year highs, the currency’s quick decline is also spurring concerns over Japan’s economic outlook.
“The main worry if the yen continues to weaken is inflation,” said Edwin Merner, president at Atlantis Investment Research.
The U.S. dollar was fetching as much as 109.46 yen intraday Friday, marking a six-year low for the Japanese currency, before the pair retreated to trade around 109.13. Early Wednesday, the U.S. dollar was fetching around 107.14.
“The government would like some inflation, but their idea of inflation is higher demand,” he said. “If you have higher costs without a lot of increase in demand, that would not be good. That may spur people to buy less.”