BOJ's 'Solo Backward Run'... Japanese Yen Hits 15-Year Low Against Euro

BOJ Continues Monetary Easing
US and Europe Lean Toward Additional Rate Hikes
"If Dollar Hits 145 Yen, BOJ Will Adjust Policy"

The value of the Japanese yen has fallen to its lowest level against the dollar in seven months. Against the euro, it has dropped to its lowest level in 15 years. The Bank of Japan (BOJ), Japan's central bank, has indicated its intention to continue its monetary easing policy, while the U.S. Federal Reserve (Fed) has hinted at a 'hawkish pause,' leading investors to sell yen and bet on its decline.

[Image source=Yonhap News]

According to Bloomberg on the 15th (local time), the yen's value fell 0.7% against the dollar, trading around 141 yen per dollar. This is the lowest level in seven months since November last year.

Against the euro, it dropped to the lowest level in 15 years. The yen traded at around 152 yen per euro in the morning, marking its lowest point since September 2008. The yen also fell to 156 yen per Swiss franc, the lowest level in 44 years since December 1979.

The Japanese government immediately intervened verbally. Hirokazu Matsuno, Japan's Chief Cabinet Secretary, stated, "Excessive volatility in the foreign exchange market is undesirable," adding, "We are closely monitoring the foreign exchange market and remain committed to taking appropriate measures if necessary."

The outlook that monetary tightening in the U.S. and Europe is not over has dragged down the yen's value. The Fed, which had raised its benchmark interest rate ten consecutive times since March last year, paused for the first time yesterday but hinted at a 'hawkish pause,' suggesting it could raise rates by 0.5 percentage points twice more within the year. The European Central Bank (ECB) also raised its benchmark interest rate for the eighth consecutive time today, fueling expectations that it will continue its monetary tightening stance.

On the other hand, the BOJ is expected to maintain its monetary easing policy alone at the upcoming monetary policy meeting the next day. Last month, BOJ Governor Kazuo Ueda expressed his intention to maintain the ultra-loose monetary policy. The market expects that the BOJ might revise its monetary policy only in the second half of next year.

Kazuo Ueda, Governor of the Bank of Japan (BOJ)
Photo by Yonhap News

As the interest rate differential between Japan and the U.S. and Europe widens, demand among investors to sell yen and buy dollars and euros to earn arbitrage profits has become more active.

The weak yen is not necessarily beneficial for Japan's export manufacturing companies. Harumi Taguchi, Chief Economist at S&P Global Market Intelligence, said, "Strong tourism demand has improved the resistance of domestic companies to the weak yen, but this is not the case for the manufacturing sector," adding, "Due to the slowdown in overseas demand caused by the economic recession, the benefits of the weak yen are hardly materializing."

Experts believe that if the weak yen continues, the Japanese government and the BOJ may take measures to defend the yen.

According to a recent survey conducted by a foreign media outlet, among 28 experts, 15 (24%) predicted that the BOJ might intervene in the foreign exchange market if the yen falls to around 145 yen per dollar. Twelve (43%) expected the intervention to occur when the yen reaches around 150 yen per dollar. Previously, when the yen fell to around 146 yen per dollar last year, Japanese financial authorities intervened in the foreign exchange market for the first time since 1998 by selling dollars and buying yen.

Notably, nine respondents (31%) anticipated that the BOJ might revise its monetary policy stance if the yen falls to around 145 yen per dollar.

A foreign media outlet reported, "If the yen's value falls rapidly or concerns grow over prolonged domestic inflation and household purchasing power pressure due to the weak yen, policymakers may intervene."

Experts expect the yen, which has fallen 7% this year, to decline further.

Rodrigo Catril, an analyst at National Australia Bank (NAB), said, "If the 141 yen per dollar level persists, the door to breaking through 142 yen could open quickly," adding, "Even if the Japanese government intervenes, the possibility of stopping the yen's weakness is low."

This content was produced with the assistance of AI translation services.