The Japanese yen has plummeted beyond 160 to the U.S. dollar, reaching its lowest level in over 37 years and breaking key psychological barriers, despite heightened vigilance about potential market intervention by Japan to slow the currency’s rapid drop.
Japanese authorities signal intention to respond to forex volatility
According to Japan’s new agency Kyodo News, Japanese authorities have signaled in recent days their intention to respond to excessive volatility in the foreign exchange market, stating that currency movements should reflect underlying fundamentals.
Yen touches lowest level since 1986
After crossing the 160 level, the yen’s decline accelerated further. The currency touched 160.39 at one point during London trading hours, its lowest point since December 1986.
This surpassed the 160.24 level reached on April 29th, a threshold that likely prompted Japan to intervene by buying the yen with U.S. dollars.
Strength of the U.S. dollar
The strength of the U.S. dollar has been driven by the prospect that the Federal Reserve will maintain interest rates at elevated levels for longer than expected, based on recent U.S. economic data indicating a robust economy.
Interest rate differential between Japan and U.S.
Meanwhile, the Bank of Japan raised its policy rate in March, but it remains around zero percent, leading to a wide interest rate differential between the two countries.
The yen’s depreciation came a day after Japan and South Korea expressed “serious concerns” about the rapid weakening of their respective currencies.
U.S. puts Japan on currency manipulator watch list
Furthermore, the United States has recently placed Japan back on its currency manipulator watch list, raising speculation that it may be more difficult for Japanese authorities to intervene in the currency market, according to dealers.
Japan’s recent currency intervention
While the government has not released daily breakdowns, the Finance Ministry has stated that it spent approximately 9.79 trillion yen (around $61 billion) between April 26 and May 29 to slow the yen’s rapid decline against the dollar.
Read more: Japan’s exports reach $53 billion in May amid weak yen, robust global demand
Impact on Japanese households
The weaker yen has contributed to the rising cost of living for Japanese households, as imported goods have become more expensive. In response, Prime Minister Fumio Kishida is seeking to implement additional measures to provide relief from inflationary pressures.
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