TOKYO, June 30 (News On Japan) – On the 28th, the yen temporarily fell to the level of 161 yen against the dollar, marking the weakest level in about 37 and a half years. Market concerns about possible currency intervention by the government and the Bank of Japan (BOJ) are increasing.
The yen started the week on Monday at a level approaching the critical level of 160 yen on the Tokyo currency market. The BOJ hinted at the need for intervention if necessary at its policy meeting this month, but the impact on the currency market was limited.
Changes took place on Wednesday when a Federal Reserve Board official indicated that cutting rates was not yet appropriate due to the risk of a new acceleration in inflation, which would send the yen down to 160.80 yen per dollar. This level of depreciation had not been seen since December 1986, after the Plaza Accord, when major countries intervened to correct the strong dollar.
During an interview, Finance Minister Kanda acknowledged the current rapid movements and indicated that the government would take necessary measures against excessive movements. Still, the yen fell to 161.20 yen per dollar before 10 a.m., further fueling the yen’s historic depreciation.
Markets remain wary of government and BOJ intervention in the currency market, as the yenโs rapid fall above 160 yen in just two days raised concerns. The finance ministerโs warning did little to calm markets, with the yen hovering around 161 yen in the afternoon.
The market believes that the interest rate differential between Japan and the US will remain unchanged in the near future, which will prompt investors to seek higher returns in other currencies. Kazuo, a strategist at Barita Research, expressed frustration over the lack of intervention, saying that intervention alone cannot stop the yen’s depreciation without substantial and sustained measures.
BOJ Governor Ueda said at the June 18 policy meeting that raising policy rates in July was a possibility, although the market reaction was minimal. Analysts suggest that the yen’s depreciation could be seen as a result of Japan’s continued loose monetary policy. The effectiveness of previous interventions has waned, as evidenced by the yen’s rapid return to weaker levels.
Although the BOJ and the government have repeatedly signaled their intention to intervene if necessary, the market sees these actions as insufficient to reverse the yen’s decline. The fall of the yen to the 160 yen level has led to discussions about Japan’s willingness to tolerate a weaker currency, reflecting political rather than purely economic motives.
The market is waiting for stronger and more decisive actions from the Japanese authorities to halt the yenโs decline. The upcoming BOJ meeting in July and possible policy adjustments will be crucial in shaping the future of the yen exchange rate.
Source: TBS
