Yen tumbles to a 34-year low

An analyst said ‘intervention concerns’ had capped the slide, but risks of further depreciation remain, such as the yen’s sizeable yield disadvantage

The yen hit a 34-year low against the US dollar yesterday, just over a week after the Bank of Japan (BOJ) announced a much-anticipated interest rate hike in a shift away from years of ultra-loose monetary policy.

The Japanese currency weakened to ¥151.97 per US dollar, its lowest level since 1990, before recovering to about ¥151.35 later in the day.

The drop came after a top BOJ official suggested it would continue to pursue an accommodative policy, echoing previous comments from the central bank, but soon afterward, Japanese Minister of Finance Shunichi Suzuki said authorities would not hesitate to “take resolute action against excessive” foreign exchange moves — raising speculation of a government intervention to prop up the currency.

The BOJ last week took a step away from its unorthodox monetary stimulus program by hiking rates for the first time since 2007, but the yen has continued to slide.

Yesterday’s dip came after BOJ board member Naoki Tamura reportedly told business leaders in northern Japan that “slow, but steady progress” was needed on scaling back the central bank’s long-standing ultra-easy policy.

He repeated a line from a bank policy statement about financial conditions staying accommodative for now, which triggered fresh falls in the yen, Bloomberg News reported.

After the currency hit a 34year low, Suzuki said the government was watching the situation closely.

“We’re monitoring market movements with a high sense of urgency. We will take resolute action against excessive moves, without ruling out any options,” Suzuki told reporters.

The Japanese government last intervened in markets to support the yen in October 2022, and on Monday a finance ministry currency diplomat also hinted that it could be on the cards again.

Further fueling speculation, BOJ officials held a rare meeting with the finance ministry and the Financial Services Agency (FSA) yesterday evening about “recent developments in financial markets,” a central bank spokesman said.

“The recent weakening of the yen cannot be said to be in line with fundamentals, and it is clear that speculative moves are behind the yen’s fall,” Japanese Vice Minister of Finance for International Affairs and top currency official Masato Kanda told reporters after the meeting.

“We will take appropriate action against excessive moves without ruling out any options,” he said.

Attending the meeting were Kanda, FSA Commissioner Teruhisa Kurita and BOJ head of policy Seiichi Shimizu.

ING Groep NV said in a note that foreign exchange markets would “test the verbal intervention of the last few days to see if there is more substance than just words.”

Royal Bank of Canada head of Asia foreign exchange strategy Alvin Tan (譚文泰) said that “intervention concerns” had capped the yen’s slide, but risks of further depreciation remain thanks to factors including “the yen’s sizeable yield disadvantage.”