In 2022, the Japanese yen depreciated significantly against the dollar.
Stanislav Kogiku | Stanislav Kogiku SOPA Images | Light Rocket | Getty Images
In Asian markets on Monday morning, the Japanese yen fell to 160 yen against the US dollar.
According to FactSet data, the yen briefly hit 160.03 yen against the dollar, its lowest level since 160.15 yen in April 1990.
The currency is weakening as expectations for Federal Reserve interest rate cuts fade and the dollar continues to rise. The Federal Reserve’s recommended inflation measure was slightly higher than expected on Friday, underscoring the U.S. central bank’s difficulty tackling persistently high inflation.
Since the Bank of Japan ended its negative interest rate system in March, the yen has remained below 150 yen against the dollar. The central bank on Friday left interest rates unchanged and slightly raised its inflation expectations for fiscal 2024.
See chart…
Three-month performance of the Japanese Yen against the US dollar
Bank of Japan Governor Kazuo Ueda said at a press conference on Friday that exchange rate fluctuations would only affect monetary policy if they had a “significant” impact on the economy, according to a translation of his remarks by Reuters.
“If the yen’s movements have a non-negligible impact on the economy and prices, that could be a reason to adjust policy,” Ueda said, according to a Reuters translation.
Japanese authorities have repeatedly warned against “excessive” movements in the yen, but have not made any official announcements about the yen’s appreciation. Some market participants had doubted that authorities would intervene at the 155 yen level, but the yen surpassed that level last week.
Vincent Chan, associate portfolio manager for T. Rowe Price’s diversified income fixed income strategy, said regulators appear to be focusing more on currency volatility than specific levels.
“The current pace of decline is slower than in 2022, so the reaction to intervention may not be as intense,” Chong said, adding that option pricing is expected to change as the market moves ahead after the BOJ’s May meeting. They pointed out that this suggests that they anticipate that an intervention may occur.
Still, Chung said the weaker yen had a “positive impact on stock price performance, encouraged companies to raise wages, and brought Japan closer to the Bank of Japan’s (BoJ) inflation target of 2%.”
Japanese markets are closed on Mondays as it is a public holiday.
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