Dollar Strengthens Against Yen Amid Japan’s Recession

The U.S. dollar maintained its upward trajectory against the Japanese yen, breaching the 150 yen threshold for the sixth consecutive day on Tuesday. This surge comes amidst growing skepticism among investors regarding Japan’s potential interest rate hike, amid its ongoing economic challenges.

Japan’s finance minister, Shunichi Suzuki, emphasized the government’s vigilant stance towards monitoring the foreign exchange market, acknowledging the multifaceted determinants influencing the yen’s exchange rate. He highlighted that factors beyond mere interest rate differentials contribute to this dynamic.

So far in 2024, the yen has experienced a notable depreciation of 6.3% against the dollar, culminating in its breach of the 150 benchmark on February 13th. This milestone, previously attained in November, has reignited discussions concerning possible intervention by the Bank of Japan (BOJ) and the Ministry of Finance, reminiscent of late 2022’s actions.

Despite historical precedents suggesting intervention at such junctures, the current scenario witnesses a more gradual and subdued decline of the yen. This subdued volatility indicates a collective nonchalance among Japanese authorities and currency traders towards the prevailing situation.

Dollar Remains Bolstered By Diminishing Prospect of US Fed Rate Cut

Market sentiments had earlier anticipated a cessation of the BOJ’s negative interest rate policy in 2023, a move poised to bolster the yen. However, Japan’s persisting recessionary woes and declining real wages have dashed these hopes, resulting in a weakened yen against major global currencies.

Conversely, the dollar finds support from diminished prospects of a rate cut by the U.S. Federal Reserve, following last week’s inflation data surpassing expectations.

While the dollar initially surged by 0.18% to hit a daily high of 150.439 yen earlier today, it has since retraced to hover just below the 150 mark at present.