The Japanese yen weakened to 160 against the U.S. dollar in Monday morning trading in Asia, reaching its weakest level since April 1990. This comes as the greenback continues to strengthen and Federal Reserve rate cut expectations are pushed back. The Bank of Japan ended its negative interest rate regime in March, leading the yen to trade around 150 or weaker against the dollar. The central bank held rates and slightly raised its inflation expectations for fiscal 2024 in a recent press conference.
Despite the weakening yen, Japanese authorities have made no official announcements about bolstering the currency. Some market watchers had expected intervention at the 155 level, but the yen slid past that mark. Officials appear more focused on volatility in the currency rather than specific levels. Speculation on potential intervention continues, with some experts suggesting that authorities may take action if the yen weakens significantly over a short period of time.
Jesper Koll from investment advisory firm Monex Group predicted that intervention would be a waste of Japan’s national assets as the country sells its U.S. dollars to buy yen. He suggested that the yen could further weaken to 200-220 against the greenback without any fundamental changes. However, he also noted that intervention could provide free liquidity for speculators unless the Fed signals rate cuts or the Bank of Japan signals a need to contain domestic demand-pull inflation. Despite this, a weaker yen has positively impacted stock performance and encouraged corporations to raise wages, moving Japan closer to the Bank of Japan’s inflation target of 2%.
Japanese markets were closed on Monday for a public holiday, providing a temporary pause in trading activity. The continued weakening of the yen and uncertainty around potential intervention have raised concerns among investors. As the currency remains at its weakest level in over 30 years, attention is focused on how Japanese authorities will respond to further depreciation. With no official announcements from authorities yet, market watchers and experts are closely monitoring the situation for any signs of intervention to stabilize the yen.
