Japan prepares to intervene in the yen after reaching its lowest levels since 1990

Japan prepares to intervene in the yen after reaching its lowest levels since 1990

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In recent weeks, Japan’s monetary authorities have admitted that they are considering intervening again in their currency, the yen, if it continues to weaken as it has been doing in recent years. The currency reached 151.8 yen per dollar this Tuesday, and speculation has arisen that the intervention will occur if the exchange reaches 152 yen, the lowest level for the Japanese currency against the American currency that has been seen in 34 years. He interest rate differential between the United States and Japan is weighing on the Japanese currency, and analysts expect authorities to try to boost the crossing by 5 yen per dollar. Others, such as Bank of America, warn that if the US Federal Reserve delays the rate cut scheduled for June, the exchange rate will fall to 160 yen per dollar.

Japan does not want a weak yen, and will do whatever it takes to keep it afloat if the cross reaches worrying levels. This was confirmed this Tuesday by the country’s former deputy finance minister, Tatsuo Yamasaki, when he declared that “the government can intervene as soon as the yen falls below the current range”, confirming last week’s warning from the authorities. “Such serious warnings would not have been issued if we were not prepared,” Yamasaki stressed.

The range to which the former Japanese vice minister refers ends at 152 yen per dollar, a level that is touching the currency cross at this time, touching, this Tuesday, 151.8 yen per dollar. Intraday, the 34-year low of the Japanese currency is the 151.97 yen that was touched last week, and which fueled speculation that the Japanese government had already drawn its weapons to act at the moment in which the cross touching 152 yen This is the level at which analysts expect an intervention, as published Bloomberg. Yamasaki’s words point in that direction: “I’m not saying that there is a fair ceiling at 152 yen, but “We are in a range that, until now, has narrowly avoided intervention.”said the former vice minister.

Experts expect that the Japanese government, if it intervenes, will try to boost the yen by about 5 yen per dollar, from 152 to around 147 yen. This movement would be around 3.3%, and would confirm the authorities’ determination to prevent the currency from depreciating further. However, it must be remembered that An intervention, which would involve using dollars to buy billions of yen, would not ensure that the currency can depreciate further in the futureas investors could continue to put downward pressure on the Japanese currency, especially if they expect that the rate differential with the United States, the main force moving the currency market, remains as wide.

Although Japan just raised rates and is done with the negative rates experiment For seven years, the prospects for the currency exchange also include the expected declines by the United States, and that is why now the key is what the Fed does with the price of money in its jurisdiction.

What do the analysts think?

The interest rate differential is what worries Bank of America the most right now. The bank’s analysts, led by Thanos Vamvakidis, the global head of foreign exchange, believe that any intervention by the Bank of Japan to try to boost the currency will not be effective until the United States begins the process of cutting rates. This is priced in by the markets for the month of June right now, but The possibility that this cut will be delayed until July is gaining more and more weightor later, or even a rate cut is erased from the outlook for 2024.

Bank of America experts believe that, if the Fed decided to postpone rate cuts until next year, the exchange rate between the yen and the dollar would sink to 160 yen per dollar. On the contrary, they expect the Japanese currency to regain ground, to 142 yen, in the event that the Fed goes ahead with its rate plan. This estimate fits with that of the average analysts who collect Bloomberg: The market consensus expects the Japanese currency to close the year at 141 yena rise of 7% from current levels.

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