Yen At Weakest Level Since 1990

The Japanese yen slid to its weakest level in about 34 years against the dollar, prompting Japan’s strongest warning that it will be taking direct action to slow this decline if need be.

The currency slipped by 0.3% to 151.97 per dollar in Tokyo, nearing the 151.95 level that triggered intervention in October 2022, leading Finance Minister Shunichi Suzuki to drop hints of possible action to full alert.

Suzuki said authorities could take “decisive steps” due to this development. His remark came shortly after the US dollar spiked on strong US data, pushing the Japanese yen to its weakest level in over three decades.

This development comes at a time when the country’s economy is going through a rough patch. The yen reached its lowest level since the mid-1990s, reminiscent of the time when Japan’s asset bubble burst, leading to decades of economic stagnation.

Moreover, the Finance Minister told reporters that he is watching the market closely, and has not ruled out any options in terms of a decisive response.

Not only this, Bank of Japan’s (BoJ) Governor Kazuo Ueda said the central bank will be also keeping a close eye on currency moves and their impact on economic and price developments.

Market sources say there is a growing sense of caution amongst traders who are worried about government intervention to keep the yen in check.

Impact of a Weaker Yen

The depreciation of the yen contributes to higher import costs, leading to inflation, while simultaneously rendering exports from the world’s fourth-largest economy more affordable.

Now, according to forex strategists at the National Australia Bank as per a Reuters report, the impact of a weakening yen is extending beyond its borders.

It has been observed that the recent decline in China’s yuan could potentially be a strategic move aimed at preserving the competitiveness of Chinese exports.

Good to Know: Chinese Economy Pressured as Inflation Hits Lowest in 14 Years

NAB strategist Rodrigo Catril told Reuters that this impact could have a “domino effect” that would cause a downside risk to other currencies as well.

The yen’s decline comes after Japan’s landmark monetary policy adjustment just last week.

Despite the Bank of Japan’s decision to increase interest rates for the first time since 2007, market sentiment is now suggesting that the rest hike may not occur anytime soon.

This, in turn, has strengthened the yen’s role in carry trades – a strategy where investors borrow money in a currency with low interest rates, and then invest that money in a currency with higher interest rates to make profits.

As we come to the end of Q2 2024 (which ends later this week), the yen is doing worst compared to other major currencies: it has fallen more than 7% against the dollar.

At time of writing, the yen is at 151.689 against the dollar.

 

Source: BitDelta Markets