The falling yen hit 150 per dollar on Thursday for the first time since 1990, propelled lower by the contrast between Japanese monetary easing and aggressive US interest rate hikes.
The currency has tumbled from around 115 levels in February as the Bank of Japan maintains long-standing ultra-loose policies aimed at fostering sustained growth in the world’s third-largest economy.
At the same time, the US Federal Reserve has sharply increased borrowing costs to quell skyrocketing inflation, which has been fueled by factors such as the war in Ukraine.
The Japanese unit fell as low as 150.08 per dollar before retreating shortly thereafter.
Analysts say the yen will continue to fall as long as the two strategies diverge, with more dramatic rate hikes from the Fed likely as US prices rise faster than expected.
And speculation is mounting that Japan could prop up its currency again after spending 2.8 trillion yen (about $20 billion at the time) on an intervention involving selling dollars and buying yen in September.
Finance Minister Shunichi Suzuki on Thursday called volatile swings in currency markets “absolutely intolerable” and repeated verbal warnings that authorities would take an “appropriate response” to promote stability.
Earlier this week, Suzuki declined to confirm if any unannounced “clandestine” intrusions had recently taken place.
“It’s probably fair to say that … the Japanese government is playing a chicken game with the market,” Jane Foley, Rabobank’s head of FX strategy, told AFP.
“There is no limit,” she said, explaining that near-term, “interest rate differentials suggest the dollar-yen will be heavily strained to move higher.”
A weaker yen boosts profits for Japanese exporters, but it can also weigh on the country’s trade balance.
Japan is heavily dependent on imported energy and also purchases other commodities, including much of its food.
September’s intervention “managed to stabilize the dollar-yen exchange rate for a while due to traders’ fear of intervention” that could cause them to lose money, Foley said.
However, the impact of such interventions will be limited if the gap between Japanese and US monetary policy remains, she added.
“It is very unlikely that there will be any change in policy at least until the spring,” she said, when important wage negotiations take place in Japan.
Japan scrapped its Covid-19 border restrictions and reopened to tourists this month, and many visitors will find shopping, dining and domestic travel bargains thanks to the weak yen and years of stubbornly low inflation.
Prices are now rising in Japan, albeit more slowly than other major economies.
In August, inflation hit 2.8 percent, the highest since 2014, partly due to rising energy prices related to the Ukraine war.
That’s above the Bank of Japan’s target for sustained inflation of 2 percent, but it views the price hikes as temporary and has therefore maintained its easy-money policy.
