Japan warns of bold action as yen slides past four-decade low of 163 per US dollar
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The authorities spent 11.73 trillion yen ($92.9 billion) intervening between April 28 and May 27, yet the yen remains at its weakest level in four decades.
PHOTO: REUTERS
- The yen fell past 163 per US dollar, reaching its weakest level since 1986, driven by US dollar strength, rising oil prices, and geopolitical tensions.
- Japanese authorities have spent $92.9 billion on interventions, but the currency remains weak, with Finance Minister Katayama warning of possible further action.
- Policy measures to support the yen, including fiscal plans and investment proposals, face scepticism, and some strategists expect no immediate intervention despite the yen’s gradual decline.
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TOKYO – Japanese financial authorities are ready to take action in the currency market if necessary, Minister of Finance Satsuki Katayama said, in comments that did little to support the beleaguered yen.
“The situation involving the US and Iran has taken a sudden turn for the worse – a deterioration that the world did not foresee – creating a very difficult environment,” Katayama told reporters on July 22. “Our policy remains completely unchanged: We will take appropriate and bold action at any time, should the need arise.”
The yen slid past 163 per US dollar overnight for the first time since 1986 after renewed tensions in the US-Iran conflict pushed oil prices higher. The yen was steady around 163.14 per US dollar on the morning of July 22 after Katayama’s comments.
The yen traded at 126.31 per Singapore dollar at about 11.20am on July 22, after falling from 126.23 at 12.35am.
“The market is ignoring it because they keep repeating the same message,” said Marito Ueda, president of SBI FX Trade. “While we can’t rule out the possibility of intervention, the market sees through the fact that the associated costs make it difficult to execute.”
Authorities in Tokyo spent 11.73 trillion yen (S$92.9 billion) intervening in the market to support the yen between April 28 and May 27, yet the currency remains at its weakest level in four decades due to concerns over fiscal expansion in Japan and expectations that the Federal Reserve is getting closer to raising interest rates.
Against that backdrop, investors have largely shrugged off recent efforts by Japanese authorities to boost the currency. Last week, Katayama warned speculators that the ministry was ready to take “decisive action” in response to currency moves at any time, in what was her strongest threat in weeks, and yet the comment did little to support the yen.
Other government efforts also have had little impact. Earlier this week, Japan’s Cabinet approved an economic and fiscal plan that included a footnote highlighting its commitment to respecting the BOJ’s autonomy, a move seen as intended to assure markets the government would not slow central bank rate hikes. Officials have also floated proposals meant to encourage more domestic investment.
Heightened tensions in the Middle East typically support the dollar versus the yen through higher oil prices, said Rodrigo Catril, senior foreign-exchange strategist at National Australia Bank.
“If, as we suspect, US-Iran tensions are set to worsen before they improve, then the dollar-yen heading towards 165 looks more likely than an imminent move back below 162,” he said. BLOOMBERG
