Source: Golden Ten Data
Economists say that if the Japanese government doesn't interfere with the exchange rate of yen against the US dollar, traders can set their sights on 160 points...
After the US released inflation data, the yen hit an important psychological threshold of 152 against the US dollar on Wednesday, making it possible for the Japanese government to intervene in the foreign exchange market as in 2022.
The yen fell to 152.736 against the US dollar, the lowest level since 1990.
Prior to the latest fall in yen, the much-anticipated US CPI rose 3.5% year over year in March, higher than economists' expectations of 3.4%.
As there are more signs that the US economy is strong, market expectations that the Federal Reserve will start cutting interest rates in June are weakening.
Despite the Bank of Japan's interest rate hike last month, the resilience of the Japanese economy and the excessive treasury bond yield gap between Japan and other developed economies such as the US are mostly bad for the yen.
Furthermore, the Bank of Japan also ended its yield curve control program, which was used to buy large amounts of Japanese treasury bonds to keep interest rates close to zero. However, at a time when the yen threatened the 152 mark, the Bank of Japan hinted on Monday that it would continue to buy Japanese treasury bonds in large quantities.
Japan's Finance Minister Shunichi Suzuki and other monetary officials have repeatedly emphasized the importance of maintaining a stable exchange rate of the yen against other currencies. They said they are prepared to take necessary measures to stop the yen from falling. In 2022, when the exchange rate of the Japanese yen against the US dollar was close to 152, Japan's Ministry of Finance bought 9.2 trillion yen and sold the US dollar.
Currently, the possibility of another intervention by the Japanese authorities is increasing. Nomura Securities has stated that when the exchange rate of yen against the US dollar exceeds 152 on the same day, the Japanese government may intervene. Bank of America Securities predicts that the yen is between 152 and 155, and the Japanese authorities are more likely to intervene. Invesco Investments said that when the yen fell to 155 o'clock, the Japanese authorities were more likely to intervene.
Ryota Abe, an economist at Sumitomo Mitsui Banking Corporation's global markets and treasury department, said that if the yen breaks through the 152 mark against the US dollar, it is expected to accelerate towards 155. He said this “will cause the Japanese authorities to become more sensitive to the exchange rate.” If the Japanese government doesn't intervene, traders may look at the 160 level.
Goldman Sachs forex analysts wrote on March 29th that the Bank of Japan has “plenty of room” to boost the yen, just as it did in 2022. Their calculations show that the Bank of Japan will have US dollar reserves worth about 175 billion US dollars, which can be used for initial intervention.
However, they warned, “The impact may be limited. The most effective intervention should be consistent with the broader macroeconomic situation, involve multi-country coordination, and exceed market expectations, which is currently not the case.”
Yujiro Goto, head of foreign exchange strategy at Nomura Securities, said that on the day the Japanese government interfered with Japan's exchange rate against the US dollar three times, the pair all rose by about 5 yen. After first interfering in the foreign exchange market, the yen resumed its decline as strong US economic data boosted US Treasury yields. He said that the yen eventually fell to a level beyond the intervention of the Japanese government.
Two interventions in October 2022 “successfully changed the trend of the yen against the dollar for at least a few months, not just a few weeks,” Goto said he attributed this trend to signs of a slowdown in the US economy.
Kensuke Niihara, chief investment officer for Japan business at State Street Global Investments Management, said that in the next year or two, the yen may rise 10% to 15% against the US dollar, mainly due to the narrowing of the interest rate gap between the US and Japan.
David Chao, a global market strategist at Invesco, said that in the long run, he expects the yen to be supported by structural factors, such as Japan's current account, which recorded a surplus for the 13th consecutive month in February.
Editor/jayden