Yen Under Pressure to Weakest Level Since 1986
The Japanese yen weakened sharply again against the US dollar on Tuesday (June 30th). USD/JPY traded around 162.65, up 0.44% daily, and remained near its highest level in decades.
Pressure on the yen remains driven by the strong US dollar and the wide interest rate differential between Japan and the United States. The Bank of Japan did raise its policy interest rate to 1% in June, its highest level since 1995. However, this figure remains well below the Federal Reserve's target range of 3.50% to 3.75%.
The interest rate differential of around 250 basis points makes the yen a less attractive currency for yield-seeking investors. This also maintains interest in carry trades, a strategy of borrowing low-interest currencies like the yen to buy higher-yielding assets or currencies like the US dollar.
The US dollar regained support after a brief correction. Tensions over Iran continue to add to inflation concerns, especially if energy risks rise again. These conditions reinforced expectations that the Fed could raise interest rates again before the end of the year.
Hawkish comments from Federal Reserve Bank of Cleveland President Beth Hammack also supported the dollar. Hammack said inflation remains too high and the Fed may need to consider additional interest rate hikes if price pressures persist.
US economic data also supported this view. The Job Openings and Labor Turnover Survey (JOLTS) report showed job openings rose to 7.594 million in May, higher than market expectations. Although hiring remains weak, this data suggests the US labor market has not completely lost its strength.
Investors are now awaiting the ADP Employment Change data and the Nonfarm Payrolls report for new clues regarding the Fed's policy direction. If employment data is again strong, expectations for a US interest rate hike could potentially increase and further pressure the yen.
From Japan, government officials continue to issue verbal warnings regarding the potential for foreign exchange intervention. Chief Cabinet Secretary Minoru Kihara stated that authorities are ready to take necessary action in the foreign exchange market if needed. Finance Minister Satsuki Katayama also emphasized that the government will respond appropriately to excessive currency fluctuations.
However, these verbal warnings have not been able to reverse the yen's weakening trend. The market believes that Japanese intervention may only be effective in the short term if the main factors driving the yen's weakening, namely the wide interest rate differential and the strength of the US dollar, remain unchanged.
At the Bank of Japan, internal discussions still point to a gradual policy normalization. Several policymakers have highlighted the risk of more persistent inflation, particularly from the weak yen and rising import costs. However, the BoJ's still cautious approach limits the yen's appeal.
Overall, USD/JPY remains in a strong trend as long as the US dollar is supported by high interest rate expectations and solid economic data. The risk of Japanese intervention could trigger a sharp correction at any time, but as long as the US-Japan yield differential remains wide, pressure on the yen is likely to persist. (arl)
Source: Newsmaker.id
