Japanese Yen breaks 145 Yen... Market Debates Whether Authorities Will Intervene

Yen-Dollar Exchange Rate Hits 145.066 Yen Intraday
Market on Alert for BOJ Intervention
Mixed Views on Intervention Amid Stock Rebound
Claims of Approaching Yen Buying Opportunity

The yen-dollar exchange rate surpassed the 145-yen level during trading on the 30th, leading to mixed forecasts regarding the Bank of Japan's (BOJ) potential intervention in the foreign exchange market. While some believe the authorities will take a wait-and-see approach due to the booming Japanese stock market, others warn that intervention should be anticipated since the exchange rate has risen to the level seen when yen purchases were made last year.

According to Bloomberg on the 30th, the yen-dollar exchange rate in the Tokyo foreign exchange market reached 145.066 yen at around 10:46 a.m. It is the first time since November 10 last year that the yen's value against the dollar has fallen to the 145-yen range.

[Image source=Reuters Yonhap News]

The strong U.S. economic indicators are analyzed to have influenced the yen's weakness. On that day, the U.S. first-quarter Gross Domestic Product (GDP) was recorded at an annualized rate of 2.0%, higher than market expectations. The number of new unemployment insurance claims also hit the lowest level in a month. Furthermore, Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), emphasized the need for two interest rate hikes within the year, fueling the yen's weakness.

As the yen's weakness becomes more pronounced, investors are engaged in heated debate over whether the foreign exchange authorities will intervene in the market.

Some believe that the BOJ will maintain a wait-and-see stance for the time being, citing the stock price rebound due to the weak yen. The Japanese stock market is vibrant as listed companies recorded record-high operating profits last year, benefiting from the yen's weakness. The Nikkei 225 index has risen about 29% in half a year.

International commodity prices have also fallen, creating a situation where the authorities do not need to hastily defend the exchange rate. Last year, Japan recorded a record trade deficit (19.9713 trillion yen) due to the combination of soaring international commodity prices and the weak yen. A trade deficit encourages yen selling, leading to a decline in the yen's value. However, this year, with international oil prices falling to around $69 and commodity prices decreasing, the trade deficit has also narrowed.

On the other hand, there are opinions that the BOJ will intervene in the foreign exchange market soon. The current exchange rate is close to the level when the BOJ purchased yen last year. The foreign exchange authorities bought about 9 trillion yen (approximately 82 trillion won) in yen over three occasions last year. The intraday high exchange rate on September 22, 2023, when the BOJ first intervened in the market, was 145.898 yen. Compared to that high, the difference is less than one yen.

A source related to the BOJ told major foreign media, "We have not yet heard that the BOJ conducted a 'rate check' asking market participants about the exchange rate level," but emphasized, "However, once the yen reaches 145 yen, it should be considered possible that the BOJ will intervene in the market."

Nomura Securities' foreign exchange strategist Yujiro Goto explained, "It may be that the yen's value has not fallen rapidly enough for the authorities to intervene in the market yet, but the possibility of their intervention is definitely increasing."

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