The Japanese yen, facing pressures that could warrant government intervention, has slipped back below the 150-per-dollar threshold, close to its lowest point in almost three decades. This move raises concerns for the Bank of Japan, prompting a potential reassessment of its monetary policies.
Widening Yield Gap
The drop in the yen’s value is due in part to the widening yield gap between Japan and the United States, with the recent turmoil in US debt amplifying this gap. Japan had previously intervened in the currency market last year within this trading range.
Japanese officials are considering whether to adjust their existing monetary policies, given the persistent yen weakness. This situation has fueled speculation about potential government intervention. However, it is worth noting that Japan has not confirmed any recent interventions, opting to act if “excessive moves” occur in the currency markets.
Japan had spent nearly $60 billion in September and October last year during its first intervention since 1998 to support the yen. Despite these efforts, the yen has depreciated by nearly 13% against the US dollar this year, making it the weakest performer among its Group-of-10 counterparts.
Bank of Japan Faces Intervention Risk as Yen to Dollars Slumps
Yen to Dollars: Currency Market Moves
The yen conversion is currently trading at 150.48 against the US dollar, marking this year’s lowest point. While the Japanese government neither confirmed nor denied recent interventions, it remains watchful of excessive currency market moves.
Excessive Moves Definition
Financial experts suggest that authorities may intervene due to their revised definition of “excessive moves.” Japan’s finance minister stated that gradual and persistent currency trends could be considered excessive.
Yield Gap Challenge
Additionally, as the US 10-year Treasury yield edges closer to 5%—in contrast to its Japanese counterpart at about 0.88%—it further complicates the economic landscape.
The Bank of Japan is reportedly contemplating potential changes to its yield-curve control program as domestic long-term interest rates align with those in the US. This development highlights the need for the Bank of Japan to adapt to evolving economic conditions and currency fluctuations.
USD/JPY Exchange Rate Analysis and Outlook
Key Price Level to Buy Yen
The US dollar has approached the critical ¥150 level in its exchange rate against the Japanese yen. This price point has historical significance and may open the door to further gains, possibly reaching ¥152. The Bank of Japan’s efforts to maintain lower interest rates have influenced this exchange rate, leading to investors holding their positions.
Yen to Dollars: Support at ¥147.80
The market is characterized by short-term pullbacks attracting buyers, with the ¥147.80 level offering substantial support. The presence of the 50-day EMA in this range further solidifies it as a significant market floor.
Despite the Bank of Japan’s influence, the prevailing market sentiment favours further appreciation of the US dollar. Expect continued volatility and market fluctuations, with eventual Japanese yen gains likely driven by buyer interest. Patience may be required, but an upward breakout is anticipated.