The yen fell to a 24-year low Monday as Japan’s easy monetary policy increasingly stood at odds with developed peers hiking rates.
The currency fell more than 0.5% to 135.19, the lowest since October 1998, as Treasury yields extended Friday’s inflation-shock driven gains. It has tumbled almost 15% this year — the worst-performing major currency — as the Bank of Japan keeps rates anchored to boost a sluggish economy while US yields surge on bets for continued Federal Reserve hikes.
Friday’s shock higher-than-expected US inflation print has heaped pressure on the Fed to intensify monetary tightening, boosting the dollar. Before it hit, senior Japanese officials delivered a ramped-up warning on the yen’s decline, putting their concern in a written statement for the first time as they seek to keep a floor under the currency.
The weakening yen is expected to have a mixed impact on the domestic economy, hurting household budgets but providing a boost to exports. A further slide would increase pressure on neighbouring Asian economies, which are losing out in export competitiveness.
“While Japanese authorities have stepped up warnings, there are few tools available to stop this momentum,” said Akira Moroga, manager of currency products at Aozora Bank in Tokyo. “The environment remains ripe for speculators to drive dollar-yen higher.”
The BOJ is unlikely to adjust policy until the yen breaches the 140 level against the dollar, a recent survey of economists by Bloomberg showed.
The yen has also been pressured lower versus other developed peers. It slid to a seven-year low against the euro and the Australian dollar earlier this month after the Reserve Bank of Australia’s bigger-than-forecast rate hike and plans from the European Central Bank to kick off monetary tightening.
The US Treasury’s semiannual report on foreign exchange released Friday may have added to the yen selling pressure, said Yuji Saito, executive director at Credit Agricole CIB’s foreign-exchange department in Tokyo. It suggested currency intervention should only be reserved for exceptional circumstances with prior consulation.
“It essentially rejected Japan intervening for yen weakness that came as a result of widening interest rate differentials because Japan is pursuing an easy monetary policy on its own decision,” Saito said. “Dollar-yen’s uptrend is unlikely to stop until US economy slows down or inflation peaks.”
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