Dollar hits 34-year high against yen after US inflation data

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The dollar hit a new 34-year high against the yen Thursday morning in Tokyo, briefly pushing the Japanese currency through what was seen as a key support line and rekindling market speculation that Tokyo authorities may attempt to intervene.

The dollar strengthened above 153 yen against the dollar for the first time since the mid-1990s – a line that some analysts had previously warned could represent a “line in the sand” and lead to a direct intervention by Japan.

Shortly after the decision, Japan’s Deputy Finance Minister for International Affairs, Masato Kanda, told reporters that authorities would not rule out measures to address excessive exchange rate fluctuations.

But while he said the recent measures had been “rapid,” Kanda stopped short of saying the latest measure was “excessive,” which two Tokyo-based traders said could be seen as a sign that the risk intervention did not change significantly.

“I don’t have a particular (exchange rate) level in mind, but excessive volatility has a negative impact on the economy,” Kanda said.

The dollar’s latest move against the yen follows stronger-than-expected U.S. inflation data in March, which pushed back market expectations for the timing of U.S. interest rate cuts and sent bond yields and the dollar.

The yen has traded near the ¥153 line in recent weeks, prompting comments from Japanese authorities that analysts interpreted as the highest level of verbal intervention.

Japan intervened directly in markets three times in 2022, buying yen to stabilize the Japanese currency as it weakened toward ¥152 to the dollar.

Traders in Tokyo said that while markets are now betting that a U.S. interest rate cut won’t come until at least September, the large U.S.-Japan rate difference is expected to put pressure persistent bearishness on the yen.

Japan ended eight years of negative interest rates in March by raising the overnight interest rate to a range of zero to 0.1 percent, but rates are expected to remain low for some time.

Currency analysts said Tokyo markets would be watching for signs that Japan’s Finance Ministry was carrying out a “rate check”, in which authorities check the price of the yen offered by traders in anticipation of a possible official intervention in foreign exchange matters.

But Benjamin Shatil, a foreign exchange analyst at JPMorgan in Tokyo, said Japanese officials would avoid giving the impression they were arguing a line. “We could see the dollar-yen pair test new highs before prompting an official response,” he said.

Shatil said shorting the yen to invest in higher-yielding currencies, including the dollar, remained a popular trade.

“Given the Fed’s reduction in budget cuts this year, there is a widespread perception among macro investors that intervention will simply serve to slow, not stop, the depreciation of the yen,” Shatil added.

Others questioned the usefulness of Japanese authorities intervening at a time when currency fluctuations were driven by the general strength of the dollar rather than factors specific to Japan.

On Wednesday, the dollar gained just over 1 percent against a basket of currencies, including the yen, for its best one-day performance in more than a year.

“Japanese authorities have warned that ‘speculative’ measures are having an impact and threatening to intervene. But the dollar’s sharp rise against the yen suggests that dollar strength will not be fought at present,” Action Economics analysts said.