The yen gained on Wednesday following Japan’s financial rally and bets on more conservative fiscal policies after Prime Minister Takaichi’s election win.
Yevgen Romanenko Time | Getty Images
I Japanese yen It weakened to its lowest level against the US dollar since 1986 on Tuesday, keeping investors wary of possible intervention by Japanese authorities.
The yen fell to 162.19 per dollar as of 1.27 am ET, marking its lowest level in four decades, according to data from LSEG.
The Minister of Finance in Japan, Satsuki Katayama, said on Tuesday that the government is ready to take appropriate measures regarding the excessive use of money.
“That includes taking drastic measures, as confirmed between Japan and the US,” Katayama said.
Chief Cabinet Secretary, Minoru Kihara, said at a regular press conference on Tuesday that the Japanese government will work to build an economy that is not vulnerable to foreign exchange volatility while being ready to intervene in the currency markets if necessary. Kihara also declined to comment on the yen’s current rate.
Nomura’s chief investment officer for North Asia, Julia Wang, said Japan could intervene in the foreign exchange market after the yen fell to a new 10-year low, although she expected any impact on broader markets to be short-lived.
While intervention is not tied to any exchange rate target in theory, moving to a new low yen cycle could raise domestic concerns about the currency’s weakness and increase the likelihood of official action, he said.
“The intervention should not depend on a certain level. It depends on the state of the currency movement, the dollar-yen situation … This is a cycle high; the new cycle is high. It is almost a critical level, it will also raise other concerns about the weakness of the currency inside,” said Wang.
Wang added that the broader outlook for the yen remains weak because the wide interest and real yield differential between Japan and the US remains trade-friendly, with investors borrowing cheaply in the yen and investing in high-yielding assets elsewhere, putting downward pressure on the Japanese currency.
“I don’t think it’s going to be a material disruption to the market,” he said, arguing that any intervention would not change the currency’s long-term direction.
Between April and May, Japan invested more than 11.7 billion yen ($72.8 billion) in foreign reserves for financing.
On April 30, the yen rose sharply to 156.6 against the dollar from 160.39, prompting speculation that Tokyo had entered the market. The currency reached around 155 the next day before resuming its decline.
The Bank of Japan recently raised its benchmark interest rate to 1%, the highest rate in more than three decades, as policymakers continue a monetary policy adjustment that began in 2024.
The quarterly increase in points marked the central bank’s first rate hike since December, when it raised rates to 0.75%, and lowered borrowing costs to their highest level since 1995.
The move comes as Japan faces rising inflationary pressures, fueled in part by high energy prices during the Iran conflict.
Japanese government bond yields rose sharply across the long-term horizon, with 40 year yield up 7 basis points to 3.779% and the 30-year yield gained almost 8 basis points to 3.914%.
— CNBC’s Lim Hui Jie contributed to this report.
