O yen reached its weakest level last Wednesday (28), renewing the lows against the dollar. A coin North American strengthened against the Japanese to a level of 151.97 dollar per yen, the highest since the mid-1990s.
The yen’s weakness was initially sparked by comments from the board member of the Bank of Japan (BoJ), Naoki Tamura. He stated that the Japanese central bank must proceed in a “slow and steady” manner to normalize the ultra-accommodative policy in the coming months.
Decades of economic stagnation meant that the great ambition of Japanese central bankers was precisely to generate some stimulus to activity via inflation.
And they did it: Japan’s core consumer price index (CPI, in English) exceeded forecasts and stayed within the BoJ’s target of 2% in January — with the help of the pandemic, it should be noted.
It is worth remembering that in mid-March Japan removed the reference rate from -0.1% per year to the range of 0.0 to 0.1%. It may seem small, but the country was the last in the world to maintain negative interest rates.
It must also be said that the week created the right climate for the yen’s weakness. Low global liquidity tends to increase asset volatility, which can intensify upward or downward movements.
Yen weakness and new Japanese dynamics
After the decision to raise interest rates, BoJ President Kazuo Ueda emphasized that monetary conditions will remain accommodative, but did not rule out the possibility of further rate hikes if inflation increases.
In other words, the BoJ is likely to continue offering little support to the yen’s weakness.
However, if there is this movement on the part of the Central Bank of Japan, the government should not stand still: there is a prospect of intervention by the authorities in the foreign exchange market.
The person who spoke about the yen’s weakness was Luis Garcia, investment director (CIO) at SulAmérica Investimentos, guest at the most recent edition of Bulls and Bears. He chose the Japanese currency as the “bear of the week”. See below:
Dollar > Yen
That same Wednesday, the dollar index (DXY) and dollar index futures rose 0.1% each in Asia. Operators gave strength to the North American currency especially after the planet’s main central banks signaled cuts in interest rates in the future.
Despite this, the eyes of the world turn to the PCE, the Federal Reserve’s (Fed) preferred inflation indicator to update the country’s monetary policy. The data should only be released on Friday (29), when part of the markets will be closed due to the holiday.
Thus, a market maxim has prevailed in recent days: never bet against the dollar.
In other words, investors increased demand for the dollar in Asia, further amplifying weakness in local currencies.
How to save a falling currency
Finance Minister Shunichi Suzuki said on Wednesday he would take “decisive action” against excessive currency movements, echoing his comments from 2022 when the government engaged in record levels of intervention to support the yen.
Other Japanese diplomats specializing in currency also warned that they would not rule out any measures to stem the yen’s fall.
In addition to the yen, the Chinese yuan also remained weak as market traders eyed relatively weaker data from China.
*With information from Investing.com, Tradingview and Yahoo Finance
Tags: Japanese yen losing reaching lowest level dollar years
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