Source Credit : Portfolio Prints
The Japanese yen weakened to its lowest level against the U.S. dollar since 1986 on Tuesday, intensifying speculation that Japanese authorities may intervene to stem the currency's decline.
The yen fell to 162.19 per dollar as of 1:27 a.m. ET, its weakest level in nearly four decades, according to LSEG data.
Japan's Finance Minister Satsuki Katayama said the government remains prepared to respond to excessive currency volatility, emphasizing that authorities stand ready to take decisive action if needed.
"That includes taking decisive action, as confirmed between Japan and the U.S.," Katayama said.
Chief Cabinet Secretary Minoru Kihara reaffirmed the government's commitment to reducing the economy's vulnerability to foreign-exchange fluctuations while maintaining its readiness to intervene in currency markets if necessary. However, he declined to comment on the yen's current exchange rate.
Julia Wang, Chief Investment Officer for North Asia at Nomura, said Japan could intervene after the yen slid to a fresh multi-decade low, although she expects any impact on financial markets to be temporary.
While foreign-exchange intervention is not officially tied to a specific exchange-rate level, Wang noted that the yen's latest decline represents a new cycle low, making it a particularly sensitive threshold that could increase domestic pressure on policymakers to act.
"Intervention shouldn't be dependent on a certain level. It depends on the nature of the currency move, the nature of dollar-yen. This is a new cycle high, and it will probably re-ignite some of the anxiety around currency weakness domestically," Wang said.
Despite the growing possibility of intervention, Wang believes the yen's broader outlook remains weak because the wide interest-rate and real-yield differentials between Japan and the United States continue to favor carry trades. In these trades, investors borrow cheaply in yen and invest in higher-yielding assets overseas, creating sustained downward pressure on the Japanese currency.
"I don't think it will be a material factor that derails the market," she said, adding that any intervention would likely slow the yen's decline rather than alter its longer-term direction.
Japan has intervened before to support its currency. Between April and May, authorities spent more than 11.7 trillion yen ($72.8 billion) from foreign-exchange reserves to bolster the yen.
On April 30, the currency strengthened sharply to 156.6 per dollar from 160.39, fueling speculation that Tokyo had entered the market. The yen appreciated further to around 155 the following day before resuming its downward trend.
The yen's weakness has persisted despite the Bank of Japan's gradual monetary policy normalization. The central bank recently raised its benchmark interest rate to 1%, the highest level in more than three decades. The quarter-point increase followed December's hike to 0.75%, lifting borrowing costs to their highest level since 1995.
The latest rate increase reflects the Bank of Japan's efforts to contain persistent inflation, which has been fueled in part by higher energy prices linked to the Iran conflict. However, the significant interest-rate gap between Japan and the United States continues to weigh heavily on the yen.
Meanwhile, Japanese government bond yields climbed sharply across the super-long end of the yield curve. The 40-year government bond yield rose 7 basis points to 3.779%, while the 30-year yield gained nearly 8 basis points to 3.914%, reflecting expectations of tighter monetary policy and rising government borrowing costs.
