The Japanese flag is juxtaposed with a Japanese yen banknote.
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THE yen slipped past 155 against the U.S. dollar on Thursday, touching a new 34-year low in the face of continued strength in the greenback.
This weakness comes as the Bank of Japan is due to publish its monetary policy decision on Friday and despite verbal warnings from Japanese authorities.
Some market observers had speculated that the 155 level would prompt intervention after the currency stagnated for a month at a multi-decade low.
“For the BOJ to support the yen, it must recognize that its policy has been too accommodative, that the next hike is as imminent as in June and that the final rate would be higher than that set by the market,” Shusuke said Yamada, general director of the yen. Japan Currency and Rates Strategy at BofA Securities Japan, said in a note Tuesday. Still, he said that was unlikely at this week’s meeting.
The yen’s weakness was also fueled by a stronger dollar. Stubborn inflation in the United States prompted Federal Reserve Chairman Jerome Powell to make comments suggesting rate cuts may not come in the coming months.
“Japanese authorities have stepped up their verbal interventions, but they appear unlikely to be effective given that currency developments appear to reflect the strength of the dollar against most currencies rather than being specific to the yen” , said Idanna Appio, portfolio manager at First Eagle Investments. told CNBC.
Appio said this week’s BoJ meeting will be crucial for investors watching inflation forecasts in light of the weak yen, rising oil prices and strong wage growth.
Are you preparing for an intervention?
The yen has weakened by 4.2% since the BoJ’s March meeting, worrying Japanese authorities and investors.
There was also talk of a possible “coordinated intervention” with South Korea. If adopted, analysts say such a measure could benefit both countries politically and economically, if it manages to support the yen and the Korean won.
Although markets would like to see Japanese authorities take decisive action to stem the fall of the yen as soon as possible, analysts say it is unlikely that the central bank or the Finance Ministry will act immediately.
“The FX tail will not be allowed to wag the dog,” Vishnu Varathan, head of economics and strategy for Asia at Mizuho Bank, wrote in a note.
Varathan said the weak yen was a policy constraint and not a catalyst for the BoJ. He noted that Japan’s central bank would likely stick to its “accommodative restraint” when it comes to adjusting rates. Instead, he added, authorities could opt for intervention via flexible bond-buying signals.
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