Japan’s yen hits 34-year-low, heating talk of intervention

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Japan’s yen hits 34-year-low, heating talk of intervention

Japanese 1,000 yen, 5,000 yen and 10,000 yen banknotes arranged in Kyoto, Japan, on Thursday, Nov. 2, 2023. The contradictions in Japan’s efforts to protect the yen while slowing the pace of rising bond yields are becoming increasingly clear in currency and debt markets. Photographer: Kentaro Takahashi/Bloomberg via Getty Images

Kentaro Takahashi| Bloomberg | Getty Images

The yen hit a 34-year-low on Wednesday, weakening as much as 151.97 against the U.S. dollar and fueling market questions over potential government intervention to prop the Japanese currency.

The yen was last at 151.22 against the dollar at 10:19 a.m. London time after paring back some losses.

The Japanese currency struck its previous record low at the tail end of last year, when it declined to 151.95 against the dollar in October 2023.

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The currency’s weakness has indicated to many investors that Japanese policymakers could step in to strengthen the besieged currency. Japan’s finance minister Shunichi Suzuki has indicated that measures to “respond to disorderly FX moves” were not off the table.

Following a meeting of the Bank of Japan with the finance ministry and the Financial Services Agency, Masato Kanda , the vice finance minister for international affairs, on Wednesday said that the yen’s moves were being watched closely and urgently, Reuters reported.

Recent fluctuations, which have been as large as 4% within two weeks, were not considered to be mild changes, he added.

BOJ officials have said that, if foreign exchange market developments were to affect Japan’s economy, the central bank would respond through monetary policy measures, Kanda noted.

Suzuki’s comments and the yen’s movements indicate that a higher likelihood of intervention, which could be set off by further changes, analysts suggested.

“There is now a higher chance of Japanese FX intervention. Another sharp lift in USD/JPY in the near term can be the catalyst,” analysts from the Commonwealth Bank of Australia said in a note on Wednesday.

A Bank of America Global Research report said that intervention was a “realistic option” for the Japanese government, but that this may not address long-term concerns.

“As the yen’s decline is a result of a mixture of structural capital outflows and elevated USD/JPY carry, and not only speculation, FX intervention would not be a fundamental fix,” the report said.

Japan’s economy unexpectedly fell into a technical recession at the end of 2023, after contracting for two consecutive quarters. The data was later revised to show an expansion, averting a downturn. The country now faces a new struggle of combating inflation, after decades of addressing deflation. In a historic decision, the Bank of Japan earlier this month ended its policy course of negative interest rates and abolished its yield curve control policy, which sparked a sell-off of the yen.

Kanda has previously said that there are pros and cons to a feebler yen. The currency’s weakness has, for example boosted tourism, and led to stronger stock market performance.

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