Japanese flag alongside Japanese yen banknotes.
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this JPY The exchange rate fell below 155 against the US dollar on Thursday, hitting a 34-year low, and the US dollar continued to strengthen.
The weakness comes as the Bank of Japan is due to release a monetary policy decision on Friday despite verbal warnings from Japanese authorities.
Some market observers had speculated that the 155 level would prompt intervention after the currency hovered at multi-decade lows for a month.
“If the Bank of Japan wants to support the yen, it should admit that policy is too loose, that the next rate hike is as imminent as June, and that the final interest rate will be higher than market pricing,” said Shusuke Yamada, director of the Bank of Japan. Currency and Rate Strategies said in a report on Tuesday. However, he said that was unlikely at this week’s meeting.
A stronger dollar also added to the yen’s weakness. Stubborn inflation in the U.S. prompted comments from Federal Reserve Chairman Jerome Powell that he may not cut interest rates in the coming months.
“Japanese authorities have stepped up their rhetorical intervention, but given that yen moves appear to reflect dollar strength against most currencies, rather than against the yen, this is This intervention seems unlikely to be effective.
Appio said this week’s Bank of Japan meeting will be crucial for investors as they will monitor inflation forecasts based on a weak yen, rising oil prices and strong wage growth.
Intervention imminent?
The yen has depreciated 4.2% since the Bank of Japan’s March meeting, worrying Japanese authorities and investors.
There was also talk of potential “Coordinated intervention” with South Korea. Analysts believe that if the action succeeds in supporting the Japanese yen and South Korean won, it could benefit both countries politically and economically.
While markets hope to see Japanese authorities take decisive action soon to halt the yen’s decline, analysts say it is unlikely that the Bank of Japan or the Ministry of Finance will take immediate action.
“The FX tail will not be allowed to swing,” Vishnu Varathan, head of Asia economics and strategy at Mizuho Bank, wrote in a note.
Varatan said the yen’s weakness was a policy constraint rather than a catalyst for the Bank of Japan. He pointed out that the Bank of Japan may insist on “dovish restraint” when adjusting interest rates. Instead, he said authorities could choose to intervene through flexible bond-buying signals.
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