Japan’s Strongest Yen Intervention Warning Since 34-Year Low
Amidst the Japanese yen’s plunge to a 34-year low against the dollar, Japan’s Finance Minister Shunichi Suzuki has signaled potential “decisive steps” to counteract the currency’s depreciation. This term echoes the language used during Japan’s last market intervention in autumn 2022, which aimed to bolster the yen’s value.
The warning came as the yen weakened further, trading at 151.97 per dollar, surpassing the 151.94 threshold that previously prompted official action. The currency’s decline to its weakest point since 1990 has raised alarms within Japan’s economic circles, as it coincides with a period of significant economic challenges for the country.
Christopher Wong, a currency strategist at OCBC in Singapore, highlighted the market’s cautious approach, suggesting that without intervention from Tokyo, there could be further pressure on the yen in the coming days. The government’s heightened vigilance over market movements underscores the urgency of the situation.
Big Impact on Economy and Prices
Bank of Japan Governor Kazuo Ueda also expressed concern over the currency’s volatility, acknowledging its substantial influence on Japan’s economic and price stability. The depreciating yen has far-reaching consequences, not only increasing the cost of imports and stoking inflation but also affecting export competitiveness.
Forex strategists at National Australia Bank have observed that the yen’s weakness is causing a ripple effect, impacting other currencies such as China’s yuan. This suggests a broader regional response to maintain export competitiveness amidst Japan’s currency woes.
The continuation of the yen’s decline follows Japan’s recent policy shift, where interest rates saw an increase for the first time since 2007. However, with expectations of further rate hikes being distant, the yen has become a popular choice for carry trades. This involves borrowing in low-interest-rate currencies and investing in higher-yielding ones, which has exacerbated the yen’s fall.
As the current quarter draws to a close, the yen stands as the worst-performing major currency, having lost over 7 percent against the dollar. The situation remains tense as markets and policymakers closely monitor the yen’s trajectory and prepare for possible intervention measures.