Yen Falls Despite BoJ Interest Rate Hike
The Japanese yen weakened to around 161.5 per dollar on Monday (June 22nd), approaching its lowest level since 1986. This weakening indicates that pressure on the Japanese currency remains strong, despite repeated verbal warnings from Tokyo authorities.
Japanese Finance Minister Satsuki Katayama said the government is ready to take appropriate action at any time against excessive currency movements. This statement reiterated previous signals that authorities could intervene again if the yen's weakening is deemed too rapid or does not reflect fundamentals.
The latest pressure has seen the yen erase all gains made on April 30th, when Japan intervened on a large scale to support its currency. This situation makes the current USD/JPY level a sensitive area as the market begins to test the limits of Japanese authorities' tolerance.
The yen's weakening occurs despite the Bank of Japan's continued policy normalization. Last week, the BoJ raised interest rates by 25 basis points to 1%, but this move was not enough to alleviate selling pressure on the yen.
The main factor remains the widening interest rate differential between Japan and the US. When dollar yields are much more attractive, investors tend to use the yen as a funding currency in carry trade strategies, then invest their funds in higher-yielding assets.
This transmission means that a BoJ interest rate hike does not automatically strengthen the yen. As long as the market views the Fed as remaining hawkish and US interest rates as potentially high, short yen positions remain attractive to some global investors.
The main drivers of this movement are the yen approaching a 40-year low, Tokyo's verbal warnings have not been effective, the market is reexamining the risk of Japanese intervention, the BoJ interest rate hike has not been sufficient to support the yen, and the carry trade remains a major pressure. The next focus will be on the USD/JPY level around 162, the response of the Japanese Ministry of Finance, the direction of US yields, and further signals from the BoJ. (asd)
Source: Newsmaker.id
