Japanese Yen Hits 34-Year Low Despite Verbal Warnings: BOJ Decision Looms

The Japanese yen reaches a new 34-year low despite verbal intervention from authorities. This development suggests a lack of market response to attempts by officials to stabilize the currency. Despite efforts to influence its value through communication, external factors or market sentiment may be driving the yen's depreciation, underscoring the complexity of currency markets and their susceptibility to various influences.

‍KEY POINTS

• 1.Since the Bank of Japan’s March meeting, the yen has depreciated by 4.2%.
• 2.The yen's decline has been driven by a stronger dollar as well. Persistent inflation in the United States has prompted remarks from Federal Reserve Chair Jerome Powell indicating that interest rate reductions may not occur in the coming months.
• 3.Analysts argue that decisive measures are necessary to strengthen the yen, but it is improbable that such actions will be taken during the BOJ's meeting on Friday.

On Thursday, the yen slipped past 155 against the U.S. dollar, hitting a new 34-year low amidst continued strength in the greenback. This decline occurred despite the upcoming monetary policy decision from the Bank of Japan and verbal warnings from Japanese authorities. Some observers had anticipated intervention as the yen hovered at multi-decade lows for a month.

Shusuke Yamada, head of Japan currency and rates strategy at BofA Securities Japan, suggested that for the BOJ to support the yen, it would need to signal a less accommodative policy stance, hint at an imminent rate hike in June, and imply a higher terminal rate than what the market expects. However, Yamada believes such actions are unlikely at the upcoming meeting.

The yen's weakness has also been fueled by a stronger dollar, with Federal Reserve Chair Jerome Powell indicating that rate cuts may not occur in the near future due to persistent U.S. inflation. Despite increased verbal intervention from Japanese authorities, analysts doubt its effectiveness, attributing the currency's movement more to dollar strength than yen-specific factors.

Investors are closely watching this week's BOJ meeting, particularly regarding inflation forecasts given the weaker yen, higher oil prices, and strong wage growth. The yen's 4.2% decline since the March BOJ meeting has raised concerns among Japanese authorities and investors.

There have been discussions about a potential "coordinated intervention" involving South Korea, which analysts believe could benefit both nations politically and economically if successful in supporting their respective currencies.

However, analysts believe it's unlikely for the central bank or the Ministry of Finance to take immediate action to stem the yen's fall. Vishnu Varathan, head of economics and strategy for Asia at Mizuho Bank, emphasized that yen weakness is a policy constraint rather than a catalyst for the BOJ. He anticipates the central bank to maintain its dovish stance on rates, suggesting that intervention through flexible bond purchase signals might be considered instead.

Source: CNBC‍