The yen on Wednesday appeared to be hit by a punch-drunk after a sudden collapse overnight, weighed down by widening interest rate differentials between Japan and the rest of the world.
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The Japanese yen breached the 161 yen level against the dollar late Thursday, inching closer to a 40-year low, reigniting speculation that the Japanese yen could intervene again to defend the currency.
After the Japanese stock market closed on Thursday, the yen fell sharply, surpassing the 161 yen level, before widening its decline later in the day, falling to 161.80 yen per dollar, its lowest since July 2024.
If the exchange rate rises above 161.96 yen against the dollar, the yen will remain at its lowest level since 1986.
Japan’s finance officials are issuing new warnings as the yen weakens. Finance Minister Satsuki Katayama reportedly said at a recent G7 meeting that Japan is “ready to take decisive action against speculative movements” in foreign exchange markets.
The currency remains under pressure despite a more than $70 billion intervention by the Treasury Department in May and a recent rate hike by the Bank of Japan that has pushed borrowing costs to their highest level since 1995.
Bank of Japan Deputy Governor Himi Norazo reportedly told parliament that the central bank was closely monitoring currency developments, considering the impact on the economy and inflation.
Experts told CNBC that intervention efforts had little effect on curbing the yen’s depreciation because the factors affecting the yen are structural.
These include rising U.S. bond yields, which continue to support the dollar, and the pro-growth policies of Prime Minister Sanae Takaichi’s government, which has signaled a preference for relatively accommodative financial conditions.
While the weaker yen has boosted Japan’s exports and economic growth, it has also raised concerns about import inflation and a decline in domestic household purchasing power.
