The yen has strengthened and moved away from areas suspected of triggering intervention in recent weeks. The trend is starting to look similar to 2022, when weak U.S. economic data kept Japanese officials from taking action.
Signs of easing inflationary pressure in the United States have fueled bets that the Federal Reserve will ease monetary policy this year. This has led to a general weakening of the U.S. dollar against other currencies. The Japanese yen has become one of the major currencies with the largest gains.
The yen rose as much as 0.8% on Thursday despite data showing Japan\’s economy shrank more than expected in the first quarter.
The yen\’s latest rebound reduces the need for authorities to intervene, said Koji Fukaya, a Tokyo-based researcher at Market Risk Advisory.
He said that although Japanese officials are worried that a weak yen will drag down consumer confidence and push up inflation, the biggest driver of the yen\’s rebound is the United States, especially a potential Federal Reserve interest rate cut.
The Japanese yen has fluctuated sharply in recent weeks. In late April, it fell below the 160 mark against the U.S. dollar for the first time since 1990. After that, two rounds of intervention actions by the authorities were suspected, triggering a short-lived rally.
The yen\’s rebound shows that, even as Japanese officials warn of intervention and central bankers signal the possibility of further interest rate hikes this year, ultimately U.S. data and monetary policy are the main factors influencing its direction.
Tokyo time 13:12. The yen rose 0.6% to 153.99 yen per US dollar.
That means the yen is about 2% above the 157.52 level it hit on May 1, before the yen strengthened sharply.
The sharp rise in the yen at that time triggered market speculation that Japan might take action to support the exchange rate.
The wide gap between U.S. and Japanese benchmark bond yields has weighed on the yen, while U.S. bond yields fell after U.S. inflation data, helping narrow the spread.
As U.S. yields fall, the yen strengthens. This is a similar trend to late 2022.
The 10-year U.S. Treasury yield was about 3.4 percentage points higher than the Japanese government bond yield on Thursday.
Data shows that this is almost the smallest gap in two months.
Recently, the dominant trend has been the gradual decline of the yen. However, in view of the weak U.S. CPI, the scenario of the Federal Reserve cutting interest rates this year is taking shape. Hirofumi Suzuki, chief foreign exchange strategist at Sumitomo Mitsui Banking Corporation, said.
A stronger yen is getting easier.
The yen\’s departure from the area that was previously suspected of triggering intervention has eased U.S. inflationary pressures, prompting the U.S.-Japan interest rate differential to narrow.
The yen has strengthened and moved away from areas suspected of triggering intervention in recent weeks, and the trend is starting to look similar to 2022, when weak U.S. economic data kept Japanese officials from taking action
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May 16, 2024 4:58 pm