Japanese Yen Reaches New 34-Year Low Amid Dollar Strength

The Japanese yen has deteriorated to surpass 155 against the U.S. dollar, marking a new 34-year low. This decline comes ahead of the Bank of Japan's (BOJ) upcoming monetary policy announcement on Friday and despite recent warnings from Japanese officials.

Weakened Yen and Monetary Policy

The yen's recent fall highlights continued strength in the U.S. dollar and raises concerns among market participants. Before the BOJ's policy decision, there was speculation that the currency's drop to this level might trigger intervention, as it has remained at historically low values for a month.

Shusuke Yamada, a strategist at BofA Securities Japan, suggests that for the BOJ to defend the yen effectively, it must recognize its current policy as overly lenient and signal imminent rate hikes. However, expectations for such a change in this week's meeting remain low.

Global Dollar Strength and Domestic Responses

The rising strength of the dollar, bolstered by persistent U.S. inflation and comments from Federal Reserve Chair Jerome Powell hinting at maintaining higher rates, has been a key factor behind the yen's weakness.

Japanese authorities have ramped up verbal interventions, but their impact seems muted due to the broad dollar rally.

Idanna Appio from First Eagle Investments notes that this week's BOJ meeting will be critical for investors tracking the BOJ's reaction to inflation pressures amid a weaker yen, rising oil prices, and strong wage growth.

Potential Intervention Measures

The yen has depreciated by 4.2% since the last BOJ meeting, igniting worries within Japan. There are discussions about possible coordinated measures with South Korea that could provide mutual support for the yen and Korean won, yet such interventions are thought unlikely in the immediate future.

Vishnu Varathan from Mizuho Bank emphasizes that the BOJ is likely to maintain its cautious approach to interest rates, suggesting that flexible bond purchases could be a more feasible intervention mechanism.

Yen, Forex, Intervention