Japanese yen sinks to 40-year low, keeping intervention risks in focus
The yen gained on Wednesday as Japanese stocks rose and bets on more fiscally responsible policies followed Prime Minister Takaichi’s election victory.
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japanese yen It fell to its lowest level against the U.S. dollar since 1986 on Tuesday, keeping investors alert to possible intervention by Japanese authorities.
The yen fell to 162.27 per dollar in early Asian trade, its lowest level in four decades, data from LSEG showed.
Japanese Finance Minister Satsuki Katayama said on Tuesday that the government is ready to take appropriate measures against excessive foreign exchange movements.
“This includes taking decisive action as approved between Japan and the United States,” Katayama said.
The Japanese government will work to build an economy that is less vulnerable to exchange rate volatility, remaining ready to intervene in foreign exchange markets if necessary, Chief Cabinet Secretary Minoru Kihara said at a regular news conference on Tuesday. Kihara also declined to comment on the yen’s current level.
Julia Wang, Nomura’s chief investment officer for North Asia, said Japan may intervene in the foreign exchange market after the yen fell to a multi-decade low, but she expected any impact on broader markets to be short-lived.
He said that although intervention was not in theory tied to a specific exchange rate level, a move to a new low cycle for the yen could raise domestic concerns about the currency’s weakness and raise the possibility of official action.
“Intervention should not be tied to a particular level. It depends on the nature of the currency movement, the nature of the dollar-yen… This is a higher cycle; this is a new higher cycle. It’s probably a sensitive level, which will reignite some of the concerns about currency weakness domestically,” Wang said.
Wang added that the overall outlook for the yen remains weak as wide interest rate and real yield differences between Japan and the US continue in favor of current accounts.
“I don’t think this will be a material factor that will derail the market,” he said, arguing that any intervention was unlikely to change the direction of the currency in the long term.
The Bank of Japan recently raised its benchmark interest rate to 1%, the highest level in more than three decades, as policymakers pursue monetary policy normalization starting in 2024.
The quarter-point increase was the first rate hike since December, when the central bank raised interest rates to 0.75% and raised borrowing costs to their highest level since 1995.
The move comes as Japan grapples with rising inflationary pressures, fueled in part by rising energy prices during the Iran conflict.
