Yen Hits 38-Year Low Against Dollar Amid Limited Intervention from Japan
The yen reached a new 38-year low against the dollar and a record low against the euro on Wednesday, continuing its downward trend as Japanese officials remained largely passive, despite the risk of market intervention.
The dollar slightly declined against a basket of currencies, extending Tuesday’s drop following dovish remarks from Federal Reserve Chair Jerome Powell, which overshadowed a strong domestic jobs report.
Euro and Sterling Movements
The euro stayed robust, supported by persistently high inflation figures from the euro zone on Tuesday, indicating that the European Central Bank would be cautious about cutting interest rates soon. Meanwhile, sterling held steady ahead of Thursday’s UK election.
Yen’s Decline
The yen weakened by up to 0.3% to 161.94 per dollar, the lowest since December 1986, and hit a historic low of 173.80 against the euro.
Japanese authorities have been relatively quiet regarding the yen this week. Finance Minister Shunichi Suzuki mentioned on Tuesday that movements were being closely monitored but did not repeat the usual warning that the ministry was prepared to act.
Atsushi Mimura is set to take over as the Ministry of Finance’s currency czar at the end of this month, replacing Masato Kanda, who oversaw a significant intervention of 9.8 trillion yen ($60.67 billion) in late April and early May when the currency fell to 160.82 per dollar.
“Currently, the FX market is challenging Japanese authorities to respond. There’s a sense that markets will continue pushing dollar/yen higher until Japanese policymakers intervene,” said Michelle Metcalfe, head of macro strategy at State Street Global Advisors.
Some speculated that Japanese authorities might act on Thursday, taking advantage of thin liquidity due to a U.S. holiday, which could exacerbate market movements.
Impact of Potential U.S. Political Changes
Analysts have also noted the increased possibility of a second Donald Trump presidency affecting the yen, as his policies could lead to higher U.S. bond yields, which the dollar-yen pair tends to follow.
“A Trump presidency would likely result in higher fiscal deficits, inflation, and yields at the mid-to-long end of the U.S. rate curve, countering the impact of Fed rate cuts,” said Tony Sycamore, a markets analyst at IG.
Dollar and Fed’s Outlook
The dollar index, which measures the currency against the euro, sterling, yen, and three other major peers, eased 0.1% to 105.61.
Fed Chair Jerome Powell stated at a European Central Bank conference in Sintra, Portugal, that the U.S. economy has made significant progress on inflation but more supportive data is needed before starting to cut interest rates.
U.S. data showed that job openings increased in May after significant declines in the previous two months. The closely watched monthly payrolls report is due on Friday.
Euro Zone and UK Election
Euro zone inflation eased last month, but a crucial services component remained high, raising concerns that domestic price pressures could stay elevated.
The euro rose 0.15% to $1.0761, while sterling edged up 0.1% to $1.26995 after a 0.28% rise on Tuesday. The opposition Labour Party is widely expected to win in Thursday’s poll, ending 14 years of Conservative government. Britain’s tight finances mean any new government will have little room to increase spending, potentially removing a catalyst for sterling weakness and keeping volatility contained.
Other Currencies
The Australian dollar rose 0.2% to $0.668, supported by better-than-expected retail sales data, keeping the possibility of another Reserve Bank rate hike alive.
China’s yuan slipped to an eight-month low in offshore trading amid signs that local authorities are willing to tolerate the currency’s decline. It was also pressured by the lowest reading since October for the Caixin/S&P Global services purchasing managers’ index (PMI).
The yuan ended the onshore session at 7.2734 per dollar, its weakest close since November 14, just above the lower end of the daily trading band at 7.2738.
($1 = 161.5300 yen)
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