Yen slips to two-decade low, rekindling focus on intervention

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The yen hit a 20-year low against the dollar on Tuesday, weighed down by the widening gap between yields in Japan and the United States, fueling speculation of a possible intervention.

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(Bloomberg) – The yen extended its lowest level in 20 years against the dollar on Tuesday, weighed down by the widening spread between yields in Japan and the United States, fueling speculation of a possible intervention.

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The currency fell 0.3% to 132.33 to the dollar – the lowest since April 2002 – with benchmark Treasury yields trading above the closely watched 3% level. It slid to a seven-year low against the euro, mounting pressure on a Japanese government facing a backlash over rising prices.

Japanese businesses and households are increasingly vocal about the negative effects of the weak yen, as input and energy costs soar. A further drop will put pressure on the consensus between a central bank determined to stoke inflation and a government desperate to avoid a cost-of-living crisis ahead of national elections in the coming months.

Rewrite Historical Yen Falling Signals from Global Currencies Playbook

“The Bank of Japan is now the only central bank among developed countries not to tighten monetary policy, which has strengthened yen crosses, leaving the yen as the only loser,” said Takuya Kanda, managing director of the Gaitame.com Research Institute in Tokyo. “Technically the next target is 135.15, so 132 and 133 are just leveling up towards that target.”

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The yen has been in free fall this year as a dovish BOJ keeps local yields anchored in a bid to stimulate a moribund economy while US equivalents surge on higher interest rate expectations. The currency also suffered from Japan’s position as an energy importer amid rising oil prices.

On Tuesday, Japanese Finance Minister Shunichi Suzuki said the government was watching the currency with a sense of urgency and reiterated that disorderly moves could have a negative impact.

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In a speech on Monday, Bank of Japan Governor Haruhiko Kuroda said policy tightening was still not on the table, saying the economy still needs more time to recover as the country lacks wage growth.

“In this situation, monetary tightening is not an appropriate measure at all,” he said, suggesting the bank should instead focus on bolstering economic activity.

As a result, the divergence between the dollar and the yen is unlikely to reverse any time soon, according to Brendan McKenna, strategist at Wells Fargo.

“We expect the Fed to continue climbing and the Bank of Japan to hold rates for the foreseeable future,” he said. “As long as these dynamics are present, the yen should continue to weaken.”


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