Yen surges after sliding to a fresh 34-year low

by Jonathan Adams

The currency hit 160.17 – its lowest since 1990 – fanning speculation that Japanese authorities would step in to support their currency for the first time since 2022

The yen surged after sliding to a fresh 34-year low past 160 per dollar on Monday as a forecast-beating US inflation reading dented expectations for Fed interest rate cuts this year.

It hit 160.17 in morning trade – its lowest since 1990 – fanning speculation that Japanese authorities would step in to support their currency for the first time since 2022.

But it briefly rebounded to 155.05, with Bloomberg reporting that the move suggested investors were weighing the prospect that officials would step in.

Friday’s forecast-beating reading on the US PCE index came after the BoJ refused to tighten monetary policy further at its meeting last week.

Officials have repeatedly said they are ready to step in if there are wild movements in the exchange rate, citing speculators as a key issue.

Nevertheless, observers were sceptical that a first intervention since late 2022 would have much of an impact.

Expectations of intervention having a sustained impact may disappoint given macro fundamentals do not support a sudden shift to a hawkish monetary stance, according to National Australia Bank’s Tapas Strickland.

The Bank of Japan called time on negative rates last month with its first increase in borrowing costs in 17 years as inflation finally settled around 2% after the “lost decades” of deflation and stagnation.

Friday’s decision to keep its benchmark rate between zero and 0.1% was keenly awaited, with the bank saying that “accommodative financial conditions will be maintained for the time being”.

The Bank of Japan has been a global exception in sticking to an ultra-loose policy while other central banks raised rates as they fought against soaring inflation – causing a wide differential that saw investors buy up other currencies.

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