Japanese yen weakens to 160 against the U.S. dollar for the first time since 1990
The Japanese yen has weakened significantly against the dollar in 2022.
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The currency stagnated alongside the greenback’s continued strength as expectations for a rate cut from the Federal Reserve were rebuffed. The Fed’s preferred inflation gauge came in slightly higher than expected on Friday, underscoring the difficulty the U.S. central bank faces in tackling persistent inflation.
The yen has traded around 150 or lower against the dollar since the Bank of Japan ended its negative interest rate regime in March. The central bank held rates steady on Friday and slightly raised its inflation expectations for the 2024 fiscal year.
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Three-month performance of the Japanese yen versus the US dollar
At a press conference on Friday, BoJ Governor Kazuo Ueda said exchange rate volatility would only affect monetary policy if there was a “significant” impact on the economy, according to a translation of his remarks by Reuters.
“If the yen’s movements have a hard-to-ignore effect on the economy and prices, that could be a reason to adjust policy,” Ueda said, according to a Reuters translation.
Japanese authorities have repeatedly warned of “excessive” fluctuations in the yen, but have made no official announcement about strengthening the currency. Some market watchers suspected authorities would intervene at the 155 level, but the yen slipped past that mark last week.
Vincent Chung, associate portfolio manager for T. Rowe Price’s diversified income bond strategy, noted that officials appear more focused on currency volatility than specific levels.
“The current pace of depreciation is lower than in 2022, so the response to intervention may be less intense,” Chung said, noting that option prices suggest that markets are predicting that intervention could take place after the BoJ May meeting.
Other experts have made similar remarks, telling CNBC that there is no “magic line” for intervention on the yen. Last week, Frédéric Neumann, chief Asia economist at HSBC and co-head of global Asia research, said the most important thing was to monitor the weakening of the yen.
If the yen experiences “steady depreciation”, the economist believes that there should not be much resistance from the Japanese authorities.
Jesper Koll, expert director at investment consultancy Monex Group, predicted that Japanese authorities would take action if the yen moves more than 3 to 5 yen in 12 hours, which is when it experiences a real speculative attack.
Speaking shortly after the yen hit 160 on Monday, Koll said any intervention “would be a waste of Japan’s national assets” as the country sells its U.S. dollars to buy yen. Koll said the yen could further weaken to 200-220 against the greenback, if nothing fundamentally changes.
For speculators, Koll said the intervention is “free liquidity” and will remain so unless the Fed signals that rate cuts are again on the table, thereby weakening the U.S. dollar, or if Ueda warns that inflation driven by domestic demand must be contained.
Still, T. Rowe Price’s Chung said the weak yen has “had a positive impact on stock performance, encouraged companies to raise wages and moved the country closer to the 2% inflation target set by the Bank of Japan (BoJ).
Japanese markets are closed Monday for a public holiday.
News Source : www.cnbc.com
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