Source: Zhitong Finance
The exchange rate of the yen against the US dollar fell to a 34-year low, fueling speculation that the Japanese authorities might take action soon to stop the yen's decline.
The Zhitong Finance App learned that after the Bank of Japan stated that it would maintain an easy monetary policy, the exchange rate of the yen fell to a 34-year low, which intensified market speculation that the Japanese authorities might take action soon to stop the decline in the yen.
On the same day, the exchange rate of the yen fell 1.8% against the US dollar, hitting an intraday low of 158.33 US dollars, and the decline intensified in late New York trading. Earlier in the day, the yen began to fall. Earlier, the Bank of Japan stated at a policy meeting that it would keep the key interest rate unchanged, and Governor Kazuo Ueda made few remarks in support of the yen at the press conference.
Data released by the US on Friday showed that the core PCE material index was basically in line with expectations, which mitigated concerns that continued price pressure might delay the Fed's interest rate cut. Even so, the yen's decline has intensified since then.
Before the Bank of Japan meeting, traders increased their short positions in the yen. According to 2006 data from the Commodity Futures Trading Commission, as of Tuesday, hedge funds and asset management companies were betting on a weak yen totaling 184,180 contracts, a record high.
Since this year, the yen has depreciated by nearly 11% against the US dollar, making it the worst performance among G10 Group currencies. The main reason for the depreciation was the huge gap in interest rates between the US and Japan. After the Federal Reserve's aggressive austerity cycle last year, US interest rates soared to the highest level in decades, while Japan's borrowing costs remained stubbornly close to zero.
Justin Onuekwusi (Justin Onuekwusi), chief investment officer of STJames Place Management (STJames Place Management), said, “This is unbelievably weak. This level of weakness is bound to attract attention. The yen has gone too far, and we tend to oppose this trend.”
Policymakers have repeatedly warned that depreciation will not be tolerated if it depreciates too fast. Japan's Finance Minister Shunichi Suzuki reiterated after the Bank of Japan meeting that the government will respond appropriately to foreign exchange trends.
After the Bank of Japan's decision was announced, the Topix stock index rose 0.9%, with real estate companies' gains expanding. The benchmark 10-year Treasury yield fell to 0.925% from 0.93% earlier in the day.
Charu Chanana (Charu Chanana), a strategist at Saxo Capital Markets (Saxo Capital Markets), said, “The Bank of Japan once again proved that it can be surprisingly dovish, and even the most dovish people on Wall Street can't rely on it.” “We are once again awaiting intervention to stop the yen's collapse. But without coordination and support from hawkish policy information, any intervention would be futile.”
In a tripartite statement last week, the US, Japan, and South Korea stated that they will continue to closely discuss the development of the foreign exchange market, while acknowledging the serious concerns of Japan and South Korea about the recent sharp devaluation of their currencies.
According to comments and analysis by Masato Kanda, Japan's top monetary official at the Ministry of Finance, the 157.60 yen exchange rate against the US dollar is a key level worth watching. Japan's Ministry of Finance will release intervention data for the period from March 28 to April 25 on April 30, while data including today will be released on May 31.
Other potential triggers include Japan's public holidays next Monday and Friday, which may present a risk of volatility in the light of trading.
Hirofumi Suzuki (Hirofumi Suzuki), chief monetary strategist at Sumitomo Mitsui Banking Corporation, said, “If the yen falls further from here, just like the situation after the Bank of Japan made a decision in September 2022, the possibility that the central bank will intervene will increase.” “What triggers intervention is not amplitude, but speed.”
In September 2022, Japan made its first intervention in buying yen since 1998. The Bank of Japan Governor Haruhiko Kuroda (Haruhiko Kuroda) made dovish remarks after a policy decision, and the yen fell as a result. As of October of that year, the Japanese authorities had entered the market three times, costing over 9 trillion yen (57 billion US dollars).
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