Japanese Yen: Japan stepped in to support the yen after it hit its lowest point against the dollar in decades on Monday, according to individuals familiar with the situation.
The yen has been on a downward trend against the dollar throughout the year, largely due to growing uncertainty among traders regarding the timing of U.S. interest rate cuts.
On Monday, the yen weakened to approximately 160 per dollar before rebounding to around 155 per dollar after Japanese authorities initiated yen purchases and dollar sales, as reported by these individuals.
While Japanese officials did not formally acknowledge the intervention, Masato Kanda, the top currency official at the finance ministry, hinted at it, expressing concerns about the negative impacts of volatile currency movements on the national economy.
Kanda also stated that the government would continue to address such erratic currency fluctuations.
This intervention follows weeks of speculation among traders that Tokyo would take steps to support its struggling currency. Despite a bullish trend in Japanese stocks and overall economic improvement in the country, the yen has failed to gain traction, prompting concerns among traders.
Alvin Tan, head of Asia foreign-exchange strategy at RBC Capital Markets, believes that Japan is likely to intervene in the currency market again this year, especially with expectations of sustained high U.S. interest rates. He predicts ongoing tension between Tokyo’s intervention efforts and market forces.
The yen’s decline underscores the significant influence of U.S. interest rates on foreign currencies. Although few traders anticipate the Federal Reserve raising interest rates this year, the delay of anticipated rate cuts has contributed to the yen’s depreciation.
Japan’s historically low interest rates leave its currency susceptible to shifts in U.S. rate expectations. The yen has long been subject to “carry trades,” where traders borrow in low-interest-rate currencies and invest in higher-yielding assets elsewhere.
While Japan has gradually shifted away from ultra-loose monetary policies, becoming the last major central bank to abandon negative interest rates in March, the yen has continued to weaken against the dollar.
Despite expectations for yen strengthening, the currency has depreciated by over 9% against the dollar this year, prompting increased bets against its appreciation.
The yen experienced a sharp decline last Friday following the Bank of Japan’s decision to maintain its interest rate target, disappointing traders who had hoped for indications of future rate increases.
Japan’s last official attempt to bolster the yen against the dollar was in October 2022 when the Ministry of Finance announced it had purchased yen worth approximately $41.1 billion at the time’s exchange rate.
The intervention coincided with a public holiday in Japan on Monday, leading to reduced trading volumes.
