Japanese yen hits all-time low after BoJ keeps policy rate unchanged

SINGAPORE (ICIS)–The Japanese yen (Y) fell to an all-time low on Friday after the Bank of Japan (BoJ) held interest rates near zero despite rising pressure to support a weakening currency.

• Yen trades at above Y156 against US dollar
• BoJ last intervened in forex market in September 2022
• Tokyo March consumer inflation eases

At 09:07 GMT, the yen was trading at Y156.52 against the US dollar, off the intra-day low of Y156.81, as Japan’s central bank maintained its benchmark policy rate at 0%-0.1% as widely expected.

This marked the weakest the yen had been since August 1990​ when it tumbled to around Y150 to the dollar.

A weaker yen is a boon for Japanese exporters, making their products competitive in overseas markets, but translates to higher import costs, thereby dampening consumer spending, and hurting smaller businesses, which are struggling to raise wages.

With the exchange rate crossing the key Y155 mark, markets are on high alert for some form of or even direct intervention from the central bank.

The BoJ last intervened in the foreign exchange market in September 2022, when the yen tumbled to Y145.90 yen against the greenback.

“Now that USD/JPY has glided through the 155 level, markets are now on high alert for Japanese FX [foreign exchange] intervention. Recall that 155 had been the level that many in the Japanese banking community had felt would elicit BoJ FX selling operations,” said Chris Turner, ING’s global head of markets and regional head of research for UK and central and eastern Europe.

“If and when the BOJ does come in – the amounts could be sizable. However, intervention can at most slow the USD/JPY advance – unless that is the broad dollar trend reverses.”

The US, Japan and South Korea on 17 April aired serious concerns over the heavy depreciation of the yen and the Korean won, agreeing  to consult closely on matters relating to exchange rate movement.

The trilateral gathering, attended by US treasury secretary Janet Yellen, Japanese finance minister Shunichi Suzuki and South Korean finance minister Choi Sang-mok, was held on the sidelines of the International Monetary Fund and Group of 20 (G20) finance leaders’ meetings in Washington.

The Japanese yen has continued to slide despite the BoJ’s historic monetary policy shift in March, when the central bank hiked interest rates for the first time in two decades, ending eight years of negative interest rates.

The decision to abandon negative rates signaled a growing confidence that Japan was finally emerging from a period of falling prices or deflation.

In a report released on Friday, the BoJ said that it expects core consumer inflation to average 2.8% for the year ending March 2025, before easing to 1.9% in the following fiscal year. The central bank has a 2% inflation target.

Latest data out of Japan’s capital of Tokyo showed that consumer inflation in April eased to 1.6% from 2.4% in March, official data showed.

Focus article by Nurluqman Suratman