The yen extended a twenty-year low against the dollar, weighed down by the widening gap between Japan and the US yields, stoking speculation over potential intervention.
The currency fell as much as 0.8% to 132.96 per 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 and the Australian dollar, heaping pressure on a Japanese government facing a backlash over rising prices.
“The Bank of Japan is now the only central bank among developed nations which isn’t tightening monetary policy and this has strengthened yen crosses, leaving the yen as the only loser,” said Takuya Kanda, general manager at Gaitame.com Research Institute in Tokyo. “The next target technically is 135.15, so 132 and 133 are just passing levels toward that target.”
The yen has been in freefall this year as a dovish BOJ keeps local yields anchored in a bid to boost a moribund economy while US equivalents surge on rising interest-rate expectations. The currency has also suffered from Japan’s position as an energy importer, at a time of rising oil prices.
On Tuesday, Japan’s Finance Minister Shuichi Suzuki said the government is monitoring the currency with a sense of urgency and repeated that disorderly moves can have a negative impact.
In a speech on Monday, Bank of Japan Governor Haruhiko Kuroda affirmed that policy tightening wasn’t on the table, indicating that the economy still needs more time to recover as the country lacks enough wage growth. “In this situation, monetary tightening is not at all a suitable measure,” he said, suggesting the bank focus instead on bolstering economic activity.
Kuroda’s comments helped accelerate yen selling by highlighting monetary policy divergence, said Jun Kato, chief market analyst at Shinkin Asset in Tokyo. They came ahead of the Reserve Bank of Australia’s key rate hike by a greater-than-expected 50 basis points, while the European Central Bank is expected to announce an end to bond purchases this week before an increase in borrowing costs in July.
The divergence between the dollar and yen isn’t likely to reverse course anytime soon, according to Brendan McKenna, a strategist at Wells Fargo.
“We expect the Fed to keep hiking and for the Bank of Japan to keep rates on hold for the foreseeable future,” he said. “As long as those dynamics are present, the yen should keep weakening.”
USD/JPY Long (Buy)
Enter at: 134.223