The Japanese yen has weakened significantly against the dollar in 2022.
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The Japanese Yen weakened to 160 against the US dollar in Monday morning trading in Asia.
The yen briefly reached 160.03 against the dollar, its weakest level since April 1990 when it reached 160.15, according to FactSet data.
The currency has languished alongside the dollar's continued strength as expectations for interest rate cuts from the Federal Reserve are pushed back. The Fed's preferred inflation gauge came in slightly higher than expected on Friday, underscoring the difficulties the U.S. central bank faces in tackling stubborn inflation.
The yen has traded around 150 or weaker against the dollar since the Bank of Japan ended its negative interest rate regime in March. On Friday, the central bank maintained interest rates and slightly raised its inflation expectations for the 2024 fiscal year.
Three-month performance of the Japanese yen against the US dollar
At a news conference Friday, BOJ Governor Kazuo Ueda said exchange rate volatility would only affect monetary policy if there were a “significant” impact on the economy, according to a Reuters translation of his comments.
“If yen movements have an effect on the economy and prices that is difficult to ignore, that could be a reason to adjust policy,” Ueda said, according to a Reuters translation.
Yen intervention?
Japanese authorities have done this repeatedly warned of “excessive” movements in the yen, but has made no official announcements about strengthening the currency. Some market observers had suspected authorities would intervene at the 155 level, but the yen slipped past that level last week.
Vincent Chung, portfolio manager for T. Rowe Price's diversified income bond strategy, noted that officials appear more focused on the currency's volatility rather than specific levels.
“The current pace of depreciation is lower than in 2022, so the intervention response could be less intense,” Chung said, noting that options pricing suggests markets are forecasting that an intervention could come after the meeting of the BOJ in May.
Other experts have made similar comments, telling CNBC that there is no magical “line in the sand” for intervention in the yen. Last week, Frederic Neumann, HSBC's chief economist and co-head of global research in Asia, said it was more important to monitor how the yen weakens.
If the yen experiences a “steady depreciation,” the economist said there may not be much resistance from Japanese authorities.
Jesper Koll, expert director at investment consultancy Monex Group, predicted that Japanese officials would take action if the yen moved more than 3-5 yen within 12 hours, namely if a real speculative attack were to take place.
Shortly after the yen hit 160 on Monday, Koll said any intervention “will be a waste of Japan's national assets” as the country sells its US dollars to buy the yen. Koll said the yen could weaken further to 200-220 against the dollar if nothing fundamental changes.
For speculators, Koll said intervention is “free liquidity” and will remain so unless the Fed signals that rate cuts are back on the table, weakening the U.S. dollar, or if Ueda signals that domestic demand inflation needs to be kept in check.
Still, T. Rowe Price's Chung said the yen's weakness “has had a positive impact on stock performance, encouraging companies to raise wages and moving the country closer to the Bank of Japan's (BoJ) inflation target of 2% brought.”
Japanese markets are closed on Monday for a holiday.
