After the Bank of Japan (BOJ) moved away from its negative interest rate policy, the yen fell to a 34-year low, nearing 152 against the dollar.
This notable decline has led to speculation about government intervention and the possibility of an early rate hike to stabilize the currency.
The yen’s swift drop, influenced by the BOJ’s cautious stance and a robust U.S. economy, saw it hit 151.96 against the dollar. When the BOJ shifted its policy, the yen was around 149.30.
Finance Minister Shunichi Suzuki signals readiness for decisive action against the yen decline, hinting at potential intervention.
Nomura Securities analysts predict a potential quarter-point BOJ rate increase in October, driven by escalating goods price inflation.
They foresee the dollar-yen rate ranging from 149 to 153, possibly strengthened by a July rate hike.
Hirofumi Suzuki of Sumitomo Mitsui Banking Corp. notes BOJ’s preference for a weaker yen to aid Japan’s economy.
However, concerns arise regarding exchange rate volatility impacting business sentiment. He suggests government intervention may occur if the rate nears 155.
Intervention Prospects Amid Yen Decline
The Finance Ministry’s intervention in 2022, buying yen worth 9.2 trillion to support the currency, shows a precedent for decisive action to curb the yen’s decline.
Bank of America Securities strategists see a growing chance of intervention if the yen-dollar rate hits 152 to 155.
They envision an initial intervention that could involve significant expenditure, aiming to slow the yen’s fall.
As the yen risks weakening further, there’s increased pressure on the BOJ to act, possibly through quantitative tightening to mitigate the economic impact.
Rising rate concerns, given Japan’s fragile economy and the high number of variable-rate mortgages, have sparked debate.
Critics caution against a BOJ rate hike this year, fearing it could hinder economic growth.
In Short, this situation underscores the delicate balance Japan must strike between stabilizing its currency and sustaining economic momentum.