Japanese Yen Weakens to 1990s Low Against US Dollar. The Japanese yen weakened to its lowest level since 1990 on Monday (April 29, 2024), breaching the psychological threshold of 160 yen per US dollar, according to Bloomberg. The yen’s exchange rate depreciated by 1.2% to reach 160.17 per US dollar. This decline reflects a bearish sentiment among investors ahead of the Federal Reserve meeting this week, occurring amidst thin liquidity due to a national holiday in Japan.
Market participants are awaiting signals from the Federal Open Market Committee (FOMC) meeting scheduled for April 30 – May 1, 2024. Expectations of maintaining interest rates amid high inflation are strengthening the US dollar and undermining the appeal of yen-denominated assets.
Last week, the Bank of Japan (BOJ) indicated that financial conditions would remain accommodative, though they have repeatedly warned against rapid depreciation. Earlier this month, Japan’s finance minister expressed concerns about the yen’s decline to US Treasury Secretary Janet Yellen, which could serve as a basis for intervention.
One reason for Japan’s reluctance to intervene may be that intervention alone cannot bridge the significant interest rate gap that is contributing to the yen’s decline. Although the BOJ raised its benchmark rate to a positive level, it remains far below levels that would entice investors seeking higher yields offered in the US and other countries.
Goldman Sachs Group Inc. strategists suggest that prevailing global macroeconomic conditions indicate further yen weakness, potentially complicating intervention success. However, the risk of intervention would significantly increase if the yen continues to underperform against other assets. Japanese Yen Weakens to 1990s Low Against US Dollar.
On the other hand, George Saravelos, Head of Global FX Research at Deutsche Bank AG, argues that yen depreciation may not necessarily be detrimental to Japan. Currency devaluation does not pose inflationary issues and encourages the appreciation of foreign assets owned by Japanese investors.
During a post-policy decision press conference on Friday (April 26, 2024), Governor Kazuo Ueda downplayed the impact of yen depreciation on inflation, stating that exchange rate movements continue to benefit the economy by boosting demand.
