Thursday was the first time since 1990 that the value of the yen fell below the crucial psychological threshold of 150 to the dollar. This occurred despite the fact that Japanese officials have often threatened to intervene in order to handle excessive volatility in the currency market.
The breaking of the important milestone by the dollar/yen exchange rate puts more pressure on Tokyo to get back into the currency market to stop the Japanese currency from falling all the time.
Earlier in the day, Japanese Finance Minister Shunichi Suzuki made a commitment to take “necessary actions” in response to the extreme volatility of the currency market.
For its part, the Bank of Japan increased its attempts to protect its 0% bond yield limit earlier on Thursday by offering to purchase emergency bonds. This was done as a show of commitment to retain the very low interest rate policy that is blamed for driving the value of the yen down.
The action taken by the central bank highlights the predicament that Tokyo is in when attempting to prevent unwanted decreases in the value of the yen without resorting to interest rate hikes that may thwart Japan’s fragile economic recovery.
“Recent yen depreciation that has been fast and unilateral is not desired. We will not under any circumstances accept swings that are too volatile because they are driven by speculative trading. ” The statement was made by Suzuki in parliament on Thursday.
He said, “We will continue to do what we need to do to stop too much volatility, and we will keep a close eye on what happens on the currency market.”
Last month, when authorities acted in the markets to prop up the yen for the first time since 1998, the Ministry of Finance, which has jurisdiction over currency policy, spent 2.8 trillion yen ($19 billion) in dollar-selling and yen-buying intervention. This was the first time that authorities had intervened in the markets since 1998.
On Thursday, the value of the yen fell below 150 in relation to the dollar, marking its lowest point against the dollar since August 1990. This has made investors very worried that Japan might get involved in the currency market again.
When it comes to deciding whether or not to step in, Japanese officials have shown signs that they are keeping an eye on how fast the yen moves instead of aiming for a specific level.
On Wednesday, Governor Haruhiko Kuroda of the Bank of Japan ruled out the possibility of boosting the bank’s ultra-low interest rates in order to slow the fall of the yen. However, he did warn that abrupt changes in the value of the yen would be harmful to the economy.
Even while the pace of yen declines has been relatively sluggish due to market concerns over intervention, experts anticipate that the currency will continue to be in a downward trend as long as the BOJ continues to be a dovish outlier amid a worldwide wave of central banks boosting interest rates.
The BOJ faces increased hurdles in maintaining stable low long-term interest rates with its strategy known as yield curve control (YCC), under which it pumps money aggressively to limit the yield on 10-year bonds to about 0%.
In response to rising global interest rates, the central bank bought emergency bonds on Thursday. This was the second day in a row that the yield on a 10-year Japanese government bond (JGB) went above the implied 0.25% ceiling.
Shinsuke Kajita, the chief strategist of Resona Holdings in Tokyo, said that “it is possible that the BOJ conveyed a message to the markets, which is having some impact.” But since other countries are putting a lot of pressure on JGB yields to go up, it will be hard to keep them from going up.
At its next two-day policy meeting, which will culminate on October 28, it is generally anticipated that the BOJ will sustain its huge stimulus package.
The weak yen was formerly praised for the competitive boost it gave exporters. However, it has now become a problem for policymakers since it inflates the prices of imported petroleum and raw materials, both of which are already quite costly.
