Kanda Masato, Vice Minister of Japan's Ministry of Finance, reiterated that appropriate action will be taken if excessive forex fluctuations are detected. The high interest rate levels in the United States have caused the dollar to continue to strengthen this year, and some countries have begun to intervene in the forex market to boost the value of their own currency.
The yen has set its longest consecutive decline since March, increasing the risk of intervention by the Japanese authorities.
In early trade on June 21, the yen against the dollar fell below the 159 level to a low of 159.13, approaching once again the closely watched level of 160 for the first time since April this year. As of now, the yen has fallen for seven consecutive days. Masato Kanda, vice minister of finance for Japan, reiterated that appropriate action would be taken if excessive foreign exchange fluctuations were detected.
The current benchmark interest rate of the US Federal Reserve is at its highest level in 20 years, which has led to a continuous strengthening of the US dollar this year. The strength of the dollar has put pressure on importers of commodities priced in dollars and countries with high debts. In order to relieve this pressure, some countries have begun to intervene in the foreign exchange market to boost the value of their own currencies.
Regarding the yen, affected by the interest rate gap between the US and Japan, the yen/dollar exchange rate fell below 160 earlier this year to its lowest level in 34 years. In order to support the yen, the Japanese government has invested a record-breaking 9.8 trillion yen, exceeding the total intervention amount for the whole of 2022.
However, Bloomberg pointed out that earlier this year, Masato Kanda had stated that a 10% depreciation of the yen against the dollar in one month was considered excessive. Currently, the maximum amplitude of the yen/dollar exchange rate in the past 28 days is about 5, which suggests that the yen/dollar exchange rate may need to fall to the 163 level before Japan will intervene.
In addition, it is worth noting that yesterday the US Treasury Department released its semi-annual currency report, adding Japan to its 'monitoring list' and expressing concerns about Japan's large bilateral trade surplus and current account surplus. Although Japan conducted record-breaking currency intervention earlier this year to support the yen, the US Treasury Department did not label it a currency manipulator.
In response to this, Masato Kanda responded on June 21 that the US foreign exchange report did not regard Japan's actions as problematic, and that intervention in the foreign exchange market did not mean altering the potential trend of exchange rates.
As the yen weakens, there continues to be a gap between Japan's government bond yields and those of major countries including the US. Previously, the Bank of Japan did not announce the details of its reduction in bond purchases at its June policy meeting. Without a schedule, traders hope to know when the Bank of Japan will normalize its monetary policy, a move that is expected to support the yen.
Barclays strategist Shinichiro Kadota said in a report, 'As long as the US-Japan interest rate differential exceeds a certain threshold, even if the differential narrows, the yen selling caused by arbitrage trading may not decrease.' The strategist predicts that by the end of this year, the dollar/yen exchange rate will trade around 160.
Editor/Somer