TOKYO – The yen has slumped to a level that puts it on course for its worst year on record, putting traders on alert for at least more verbal intervention from Japanese officials.
The currency has fallen more than 19% this year and surpassed its worst previous annual decline in 1979. The renewed selling of Treasuries this month has widened the yield gap between the United States and Japan, making going up the dollar and pushing up the yen. at a low of 24 years.
The dollar-yen rose above the 143 level for the first time since 1998 on Tuesday, a move that will increase pressure on Bank of Japan Governor Haruhiko Kuroda’s disdain for a global shift to higher rate and the strength of Prime Minister Fumio Kishida’s support for his position.
It traded around the 143.03 level in early trading on Wednesday.
The yen also fell against the Singapore dollar, trading at 101.78 to the Singapore dollar on Wednesday morning.
In June, officials said they would take action if necessary, without specifying what it would be, after a tripartite meeting was held between the finance ministry, the central bank and the Financial Services Agency.
Japan last stepped in to support the currency in 1998, around the same time much of Asia was rocked by a regional financial crisis.
Developed economies are also being hit by the appreciation of the dollar to multi-decade highs in a way that was once again familiar to their emerging market counterparts.
Fueled by the most aggressive US Federal Reserve tightening cycle in more than a generation, the strengthening greenback is pushing rival currencies lower, pushing up the cost of imported goods, tightening financial conditions and fueling the inflation in other economies.
“A stronger dollar is usually accompanied by higher short-term and long-term interest rates in the United States, or stress in global markets and a flight to the perceived safety of the dollar,” said the Dr. Maurice Obstfeld, Principal Investigator at the Peterson Institute for International. Economy. “These tighter financial conditions are slowing developed economies everywhere.”
The Fed’s trade-weighted dollar index against advanced economies has climbed 10% this year to its highest level since 2002, while the emerging markets (EM) measure is up more modestly down 3.7% and remains well below its peak since the 2020 Covid-19. 19 pandemic.
While some of the world’s worst performing currencies this year have come from developing economies such as Sri Lanka, the outperformance of commodity-backed currencies such as the Brazilian real and Russian ruble has bolstered the emerging market group.
“By raising policy rates alone, other countries are unlikely to stop their currency depreciation,” said economist Sayuri Shirai, a former Bank of Japan board member and now a professor. at Keio University.
Indeed, “the strength of the dollar not only reflects an expectation of federal funds rate hikes this year – and therefore higher demand for US fixed income assets – but also reflects global recession risks stemming from increases in larger-than-expected policy rates around the world,” she added.