The yen tumbled to the weakest level versus the greenback since November after the Federal Reserve signaled it may have to raise interest rates further, fueling concern that the Bank of Japan’s ultra loose policy stance will fail to anchor the currency.
(Bloomberg) — The yen tumbled to the weakest level versus the greenback since November after the Federal Reserve signaled it may have to raise interest rates further, fueling concern that the Bank of Japan’s ultra loose policy stance will fail to anchor the currency.
The Japanese currency fell as much as 1% to 141.50 per dollar, with the slide not halted by Chief Cabinet Secretary Hirokazu Matsuno saying excessive movements weren’t desirable. The yen has now surpassed last month’s lows that led the nation’s top currency official Masato Kanda to say the government would take action if needed.
The stance from Fed officials on Wednesday stands in sharp contrast to BOJ policymakers, who have stuck with monetary easing even as most global peers tighten. The Fed indicated at its meeting that at least two more rate hikes might be necessary this year, while almost all economists surveyed by Bloomberg see the BOJ leaving its ultra loose policy unchanged at its next decision on Friday.
“The trend for the yen to weaken amid no policy change by the BOJ, in combination with a more hawkish Fed, is likely to continue for a while,” said Tsutomu Soma, a bond and currency trader at Monex Inc. “Authorities may verbally intervene as the yen continues to weaken but actual intervention is unlikely as there’s some benefit from it for the nation, such as higher stock prices.”
The yen has come under broad selling pressure recently, down against every G-10 peer so far in June. On Thursday, Japan’s currency extended declines for a fourth straight session versus the euro to 153.19, the weakest point since September 2008, after the European Central Bank lifted interest rates by another quarter point with President Christine Lagarde describing a further hike in July as “very likely.” The currency also dropped to a nine-month low versus the Australian dollar.
But BOJ officials see little need to adjust their yield curve control program this week given some improvement in the functioning of the bond market, according to people familiar with the matter.
Governor Kazuo Ueda said earlier this month that the BOJ has consistently stated it will maintain easing until its price goal is achieved in a stable manner, feeding further into speculation the central bank will stay pat in coming months.
BOJ’s Ueda Likely to Hold With Bond Market on His Side for Now
Last year, the yen’s drop toward 146 per dollar triggered Japan’s first intervention to prop up the currency since 1998, though in the build up to that there were repeated official warnings about direct action. The Japanese currency has fallen more than 7% this year.
“A sustained break above 141 opens the door for levels above 142 to be tested and potentially quite quickly,” said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney. “Intervention is unlikely to do much to arrest yen weakness, it merely offers an opportunity to reset shorts.”
–With assistance from Aline Oyamada and Neil Chatterjee.
(Updates prices and context throughout.)
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