Yen Slumps to Three-Month Low, Raising Fears of Government Intervention

Yen has dropped to its weakest level in nearly three months against the US dollar, sparking fresh concerns that Japanese officials may intervene if the currency continues to slide. On Wednesday, the Yen tumbled by as much as 1.4%, hitting 153.19 per dollar, the lowest since July 31. This significant decline pushed the currency pair past a key technical level at 151.38, its 200-day moving average, a threshold that analysts believe could pave the way for further losses.

The weakening Yen is primarily attributed to the robust strength of the US dollar, driven by a surge in US bond yields. The Federal Reserve’s cautious stance on interest rate cuts has bolstered the greenback, and speculation that the upcoming US presidential administration may adopt more inflationary policies is further boosting the dollar’s appeal. In response to the currency’s fall, Japan’s Finance Minister Katsunobu Kato refrained from commenting on the Yen’s performance. He also noted that discussions about the global financial landscape may feature prominently at an upcoming G20 finance chiefs meeting in Washington.

Yen Faces Continued Pressure

 

According to Yukio Ishizuki, senior foreign exchange strategist at Daiwa Securities, the downward trend for the Yen could persist. “The Yen may weaken further while the dollar continues to strengthen,” Ishizuki noted, adding that intervention by Japanese authorities might be inevitable if the decline persists. Nomura International Plc echoed these concerns, suggesting that further depreciation after this weekend’s general elections could lead to intervention or prompt the Bank of Japan to consider raising interest rates sooner than expected.

Japan’s bond market also reflected the downward pressure, with the 40-year sovereign yield briefly rising to its highest level since 2008. Despite this, the yield remains well below the rates on US 10-year and 30-year Treasuries. In October alone, the Yen has plunged over 6% against the dollar, setting the stage for its worst monthly performance since April 2022 as markets prepare for the US election and a slower-than-anticipated easing of US monetary policy.

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