Falling Yen Approaches 145 Yen Level... Reasons Why Japanese Authorities Find Market Intervention Difficult

Surpassing 144 Yen After 7 Months
Japanese Authorities Hint at 'Intervention'
Conflicting Market Views Emerge
Strong Corporate Earnings and Falling Commodity Prices
Factors Lowering Likelihood of Authorities' Intervention

The yen-dollar exchange rate surpassed the 144 yen level on the 27th for the first time in seven months, prompting the Japanese foreign exchange authorities to once again announce intervention in the foreign exchange market. However, considering factors such as the rise in the Japanese stock market and the decline in commodity prices, the market is presenting conflicting views that the authorities' market intervention may not be easy.

According to Bloomberg on the 29th, the yen-dollar exchange rate in the Tokyo foreign exchange market stood at 144.34 yen per dollar as of 9:35 a.m. The yen exchange rate briefly surpassed 144 yen during the afternoon session on the 27th, then fluctuated slightly before settling in the 144 yen range the following day.

The yen value, which hit its lowest point in 32 years last year, turned strong at the beginning of this year. However, as the interest rate gap with major countries widened, it shifted to a weak phase from March. Moreover, Jerome Powell, Chairman of the U.S. Federal Reserve, reaffirmed the need for two interest rate hikes within the year at the Federal Open Market Committee (FOMC) on the 22nd, fueling yen weakness.

Due to the yen's weakness, the market is closely watching whether the authorities will intervene to defend the exchange rate. Previously, the authorities intervened by purchasing yen in September last year and subsequently intervened two more times, injecting approximately 6.3499 trillion yen (about 61 trillion won) into the market. The foreign exchange authorities hinted at the possibility of intervening in the market again this year. Finance Minister Shunichi Suzuki told reporters the day before, "We will respond appropriately to excessive movements."

However, the market is placing low odds on the possibility of intervention by the authorities. The positive effects currently arising in the market due to the weak yen are significant. In fact, Japanese listed companies recorded a record high operating profit of 39.1 trillion yen last year, supported by the weak yen. The stock market is soaring on the back of companies' strong earnings. The Nikkei 225 index, which was at the 27,000 yen level earlier this year, jumped to the 33,400 yen level on this day.

The decline in international commodity prices is also a factor reducing the likelihood of intervention by the authorities. Last year, Japan recorded a record-high trade deficit of 19.9713 trillion yen due to the combination of soaring international commodity prices and an unprecedented weak yen. As a result, Japan was trapped in a so-called "vicious cycle of yen weakness," where the increased trade deficit further fueled yen selling pressure, leading to a decline in the yen's value.

However, international oil prices, which had surged to $120 per barrel last year, have fallen to around $69 for August delivery of West Texas Intermediate (WTI) crude oil. The Nihon Keizai Shimbun reported, "Due to the decline in resource prices such as crude oil, the trade deficit, which had risen to over 2 trillion yen in September last year, has decreased to 700 billion yen last month," adding, "The vicious cycle of rising import prices caused by soaring commodity prices and yen weakness has, for now, been broken."

Experts predict that this trend of yen weakness will continue for the time being. Masafumi Yamamoto, a foreign exchange strategist at Mizuho Securities, said, "There is a growing market expectation that the government will not buy yen even if the yen-dollar exchange rate falls to 145 yen per dollar," diagnosing that the yen's weakness is likely to continue amid the possibility of intervention by the authorities.

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