The yen has fallen almost to 4% in August and traded at the 138.50 mark on August 30 as traders refocused on Japan’s interest rate differential with the world’s other currencies amid a torrent of hawkish Federal Reserve comments. A low of 24 years is just a short distance away, and some market observers have identified the 140 mark as a crucial one for regulators.
According to the NBC Financial Markets Director in Asia, David Lu, as the Japanese currency nears this threshold, a non-invasive intervention is initially expected. He went on to say that “an actual intervention is likely to be ineffective at this point where the dollar is rising broadly on US monetary policy prospects while there is no support for the yen from the Bank of Japan.”
The speech delivered by Jerome Powell, the Chair of the Federal Reserve in the Jackson Hole symposium in Wyoming in the week prior, dispelled any remaining hope for a looser stance on interest rates by stating explicitly that fears over the economic downturn are not at focus.
Contrarily, BOJ Governor Haruhiko Kuroda reiterated the importance of further easing while underlining once more the glaring distinctions among Japan and the US that increased strain on the Japanese Yen in 2022.
As per information gathered by Bloomberg, there is a 51% possibility that the Japanese yen will reach 140 before the week’s close based on an indicator of implied volatility.
According to Masafumi Yamamoto, the Mizuho Securities chief FX strategist, a three-party meeting involving the Ministry of Finance, BOJ, and Financial Services Agency may be scheduled if the yen declines to a 24-year low. This is what took place two months ago as officials declared they would intervene if required but did not elaborate. The Japanese yen was changing hands at about 134 to the greenback at that time.
Japan has not supported its own currency since 1998, once it hit a low of about 146 to the dollar and the Asian financial crisis was in full swing. A drop to 130 initially triggered the intervention.
Even if analysts suspect a change in policy by the Japanese central bank when Kuroda moves on in Q2 of 2023, some strategists believe it is more plausible than full-fledged currency intervention.