Yen's Depreciation Triggers Speculation Of Government Action: Nikkei Asia

Investors are closely monitoring the Japanese government’s potential actions to support the yen as it nears levels that previously triggered intervention in the currency markets, reported Nikkei Asia.

Yen’s Recent Performance

The yen briefly hit 145 against the dollar on Friday and hovered around 144.50 on Tuesday, marking a significant depreciation since the end of March when the dollar traded at 133.30 yen.

During the previous intervention, on Sept. 22, 2022, the Japanese unit had dropped to near 146 level, according to the report.

This weakening trend is largely due to the substantial interest rate gap between Japan and the United States, which encourages traders to sell yen and buy dollars.

Monetary Policies

The Bank of Japan (BOJ) continues its monetary easing under Governor Kazuo Ueda, aiming for a 2% inflation target. In contrast, the U.S. Federal Reserve has raised interest rates ten times consecutively until May to combat inflation, with Fed Chair Jerome Powell hinting at two more rate hikes this year.

Market Reactions and Speculations

Japan’s Finance Minister Shunichi Suzuki expressed the government’s high sense of urgency regarding the market situation, promising to deal appropriately with any excessive movements. Masato Kanda, Japan’s vice finance minister for international affairs, hinted at possible coordinated intervention with foreign monetary authorities.

Market Expectations

Despite the yen nearing the 145 level, which triggered last year’s first intervention, market experts do not foresee an immediate intervention. They argue that the current situation differs from last year, with the weak yen now boosting stock prices and attracting inbound tourists to Japan. However, speculation for short-term gains could further weaken the yen, potentially prompting government intervention.

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