Yen slides, Japan closely watches market

Japanese 10,000 yen banknote. Photo: AFP/TTXVN

Additionally, the market is also concerned that the upcoming US inflation report could spark another bout of volatility.

Accordingly, the yen stood at 160.45 yen per dollar in Asian markets on Thursday, just off a 38-year low of 160.87 yen per dollar recorded on June 26.

Market attention is now focused on Tokyo, after Vice Finance Minister Masato Kanda said earlier this week that authorities were closely monitoring developments in the foreign exchange market and were ready to intervene.

Japanese Finance Minister Shunichi Suzuki expressed concern about the impact of a weaker yen on the economy on June 27. Japanese officials are quickly analyzing the situation and will take measures if necessary.

Chief Cabinet Secretary Yoshimasa Hayashi also told a news conference the same day that Tokyo would take “appropriate” action against excessive fluctuations in the currency market. He declined to comment on the yen’s value and whether the government would intervene.

Analysts say traders may continue to test the waters to see when the Japanese government will act. Some say the currency could fall to 165 yen per dollar, while others warn the yen could fall to 170 yen per dollar.

The latest decline in the Japanese currency comes amid uncertainty surrounding the timing of the US Federal Reserve's interest rate cut and the Bank of Japan's (BoJ) cautious approach to tightening monetary policy. The Fed remains concerned about uncontrollable inflation and Japanese officials are trying to avoid damaging the fragile economy.

The US personal consumption expenditure (PCE) index – the Fed’s preferred inflation gauge – will be released this Friday (June 28 local time). Better-than-expected figures could push back expectations of a Fed rate cut and put further upward pressure on the dollar.

Japanese authorities may be starting to worry not just about the pace but also the extent of the yen's decline, said Masafumi Yamamoto, a currency strategist at Mizuho Securities.

But analysts doubt whether adjustments and even intervention can reverse the yen's weakening trend, as the main driver for this is uncertainty about when the Fed will start cutting interest rates.

Meanwhile, the BoJ’s July 30-31 meeting will be closely watched. The bank disappointed investors in June by delaying the end of its bond-buying program, which is used to reduce borrowing costs.

The BoJ has played down signals of an imminent rate hike, although any increase would still leave Japan's borrowing costs very low.

Robert Brown, an analyst at financial services firm MAS Markets, said the yen could strengthen in the coming period as the BoJ considers reducing bond purchases and raising interest rates. However, the exchange rate differential with other major currencies could continue to put pressure on the yen in the meantime.

According to Tin Tuc Newspaper

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