The yen extended a 20-year low against the US dollar yesterday, weighed down by the widening gap between yields in Japan and the US, stoking speculation over potential intervention.
The currency fell as much as 0.8 percent to ￥132.96 per US dollar — the lowest since April 2002 — with benchmark Treasury yields trading above the closely watched 3 percent level.
It slid to a seven-year low against the euro and the Australian dollar, heaping pressure on a Japanese government facing a backlash over rising prices.
Japanese companies and households have become increasingly vocal about the negative effects of the weaker yen as input and energy costs soar. A further slide would put pressure on the consensus between a central bank determined to stoke inflation and a government desperate to avoid a cost-of-living crisis ahead of a national election this year.
The yen has been in freefall this year as a dovish Bank of Japan (BOJ) keeps local yields anchored in a bid to boost a moribund economy while US equivalents surge on rising interest-rate expectations. The currency has also suffered from Japan’s position as an energy importer, at a time of rising oil prices.
Yesterday, Japanese Minister of Finance Shuichi Suzuki said that the government is monitoring the currency with a sense of urgency and repeated that disorderly moves can have negative impact.
In a speech on Monday, BOJ Governor Haruhiko Kuroda affirmed that policy tightening still was not on the table, indicating that the economy still needs more time to recover, as the country lacks enough wage growth.
“In this situation, monetary tightening is not at all a suitable measure,” Kuroda said, adding that the bank should focus instead on bolstering economic activity.
Kuroda’s comments helped accelerate yen selling by highlighting monetary policy divergence, said Jun Kato, lead market analyst at Shinkin Asset in Tokyo.
The divergence between the US dollar and yen is not likely to reverse course any time soon, Wells Fargo & Co strategist Brendan McKenna said.
“We expect the Fed [US Federal Reserve] to keep hiking and for the Bank of Japan to keep rates on hold for the foreseeable future,” he said. “As long as those dynamics are present, the yen should keep weakening.”
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