Written by Satoshi Kajimoto
TOKYO (Reuters) – Japan’s finance minister issued his strongest warning yet on Wednesday about a weakening yen, after the currency fell to a 34-year low against the dollar, a phrase authorities had previously used before intervening. He said he may take “decisive action.”
Shunichi Suzuki previously used the term “decisive measures” in the fall of 2022, when Japan last intervened in the market to stem a devaluation of the currency.
Suzuki made the remarks on Wednesday, shortly after the dollar soared on strong U.S. economic data, pushing the Japanese yen to a 34-year low and levels that prompted formal market intervention a year and a half ago. .
The yen was trading at 151.97 yen to the dollar in Asian trading hours, a decline of about 0.2% and weaker than the 151.94 yen level at which Japanese authorities intervened to buy the yen in October 2022. became.
It was the lowest level since the mid-1990s, when Japan’s asset bubble burst and decades of economic stagnation followed.
“I think the market is cautiously testing where the boundaries are for Tokyo,” said Christopher Wong, currency strategist at OCBC in Singapore. “This is a new cycle high, so I think the risk of intervention is quite high. And given the warnings so far, if Tokyo doesn’t act, it will encourage people to push (dollar/yen) higher. ”) will rise significantly in the coming days. ”
Suzuki said that the government is closely monitoring market movements with a high sense of crisis in response to the yen’s depreciation.
Major impact
Bank of Japan Governor Kazuo Ueda said on Wednesday that he would closely monitor exchange rate movements and their impact on economic and price developments.
In response to a question about the recent sharp decline in the yen, Ueda said in parliament, “Forex movements are one of the factors that have a major impact on the economy and prices.”
A weaker yen makes imports more expensive, fueling inflation and making exports from the world’s fourth-largest economy cheaper.
Foreign exchange strategists at National Australia Bank say the ripples from the weaker yen are being felt elsewhere, and the recent plunge in the yuan may be a policy response to protect China’s export competitiveness. He pointed out that there is.
“This is not just about the yen. There is a domino effect that creates downside risks for other currencies,” said Rodrigo Catril, a strategist at NAB.
Since last week’s historic shift in Japan’s monetary policy, the yen has continued to fall.
The Bank of Japan raised interest rates for the first time since 2007, but markets now believe the next rate hike may be some time away.
This has encouraged the use of the yen in carry trades, where investors borrow in low-interest currencies and invest the proceeds in higher-yielding currencies. Japanese investors could also deprive the yen of support from repatriation and reap much larger profits overseas.
In the current quarter, which ends this weekend, the yen has fallen more than 7% against the dollar, making it the worst performer among major currencies.
(Reporting by Satoshi Kajimoto in Tokyo; Additional reporting by Lei Wee and Tom Westbrook in Singapore; Writing by Lincoln Feast; Editing by Kim Cogill and Sam Holmes)
