TOKYO – The yen slid past 163 per US dollar for the first time since 1986, extending its decline and increasingly testing Japanese authorities’ resolve to intervene.
Japan’s currency fell as much as 0.5 per cent to 163.24 per US dollar overnight as the greenback strengthened alongside US Treasury yields after renewed tensions in the US-Iran conflict drove oil prices higher.
The move underscores how geopolitical tensions, Japan’s fiscal outlook and wide interest-rate differentials continue to overwhelm efforts to stabilise the currency. Authorities spent 11.73 trillion yen ($92.9 billion) intervening between April 28 and May 27, yet the yen remains at its weakest level in four decades.
Japan’s Finance Minister Satsuki Katayama last week used her strongest language in weeks to warn of possible currency intervention.
“Rising oil prices, the prospect of US rate hikes, and stimulatory fiscal and monetary policy conditions in Japan are fueling the trend – one that’s unlikely to end without a material course correction from Japanese authorities,” said Kyle Rodda, an analyst at Capital.com.
“As a result, the markets will be on intervention watch.”
Investors have largely shrugged off a series of policy initiatives that, in theory, should support the currency. Earlier this week, Japan’s Cabinet approved an economic and fiscal policy plan with a footnote stating that it leaves specific monetary policy decisions to the Bank of Japan while respecting its autonomy, a move seen as helping ease concerns that political pressure could delay further interest-rate increases.
Officials have also floated proposals to encourage more domestic investment, including asking the Government Pension Investment Fund to review its asset allocation and considering allowing Japanese government bonds to be held in tax-free NISA accounts.
While such measures could support the yen over time by encouraging repatriation, many investors see them as unlikely to offset the currency’s near-term headwinds.
Katayama has also stressed she has no authority to step into the fund’s investment decisions. By law, the GPIF must manage assets solely in the interests of pension beneficiaries rather than to support government policy.
Some strategists argue the gradual nature of the yen’s decline reduces the urgency for intervention.
“Although USD/JPY has now broken above 163, the move has been exceptionally gradual. My base case is still that the authorities will refrain from intervening,” said Rinto Maruyama, senior FX and rates strategist at SMBC Nikko Securities.
“Absent any intervention, 165 appears to be the next major level the market will focus on.” BLOOMBERG
