Yen Strengthens as Japan’s Prime Minister Vows Action
SINGAPORE/MILAN, Jan 25 – The week kicked off with foreign exchange markets displaying some tension, primarily due to Friday’s notable surge in the yen and the commitment from Japan’s Prime Minister Sanae Takaichi to address any speculative trading activity.
During early European trading on Sunday night, the yen gained a bit more against the dollar, building on the gains from Friday. By 2045 GMT, the dollar had dipped roughly 0.8% against the yen, trading at 154.56—its lowest point since mid-December. Meanwhile, the dollar index decreased by 0.4%, settling at 97.085, while the euro rose by 0.3% to $1.1869.
As trading thinned out due to an Australian public holiday, the early hours in Asia on Monday are expected to be particularly susceptible to sudden shifts.
Short sellers seem to be getting anxious, especially after the yen experienced its largest increase in around six months, closing at 155.73 per dollar on Friday. Just the day before, the yen had approached 160 to the dollar—a level where market intervention becomes a real risk. However, thanks to the New York Fed’s interest rate check, the yen’s rebound caught many by surprise. Some traders speculate that this could lead to a coordinated effort between the U.S. and Japan to stabilize the yen’s value.
This would be the first joint intervention since G7 countries took action back in 2011 to respond to the yen’s drastic increase post-Tohoku earthquake. In the current situation, the yen has been weak for years, and the value of the dollar is nearly at a historic low. This prolonged downturn has stirred concerns among officials about the economy’s health. The yen saw two significant rises on Friday—one during London trading and another in New York.
Elias Haddad, a strategist at Brown Brothers Harriman, mentioned that the dollar seems to have reached a peak against the yen, which may set the stage for a trading range between 140.00 and 145.00, reflecting the interest rate differences. He pointed out that Japan’s fiscal challenges are perhaps overstated since growth rates are surpassing borrowing costs. Moreover, he believes Japan’s blend of accommodating fiscal policies and tight monetary strategies could benefit the yen.
On Sunday, Takaichi indicated that the government would take “necessary measures” against any abnormal market fluctuations but didn’t specify which markets that might involve.
Impact of a Weak Yen
A weaker yen presents a challenge for Japanese policymakers as it increases import costs and contributes to inflation, diminishing purchasing power for households. Since Takaichi’s leadership began, the yen has depreciated over 5% against the dollar, and rising bond yields have prompted worries that increased government spending could necessitate additional borrowing.
Despite last week’s record lows against the euro and Swiss franc, analysts believe the yen could surpass Friday’s closing if traders begin to reflect on potential U.S. and Japanese buying efforts. Nomura’s Yusuke Miyairi remarked that the efficacy of any future interventions could grow in importance.
Japanese Finance Minister Satsuki Katayama expressed in early January her shared concerns with U.S. Treasury Secretary Scott Bessent regarding what she termed the “unilateral depreciation of the yen.” Elsewhere, Bessent also touched on the South Korean won, suggesting its recent drop doesn’t align with fundamentals, which has led to talk around possible agreements to support the yen and the Korean won.
As Brent Donnelly, a currency trader and founder of Spectra Markets, noted, there is a reasonable belief that the U.S. and several Asian nations might have conferred stability measures for the yen, won, and, potentially, the Taiwanese dollar after Bessent’s remarks on the won.
