Bank of Japan's Mild Tightening... Yen Hits Lowest in 9 Months

Rising Yen Selling Amid US Inflation Rebound Concerns

The value of the Japanese yen against the US dollar has fallen to its lowest level in nine months, surpassing the psychological support level of 145 yen per dollar. Concerns about a rebound in inflation due to rising gasoline and food prices have increased the likelihood of further tightening by the US, and the widening interest rate gap between the US and Japan is believed to have weakened the yen's value. Last month, the Bank of Japan (BOJ) appeared to raise the yen's value by adjusting its tightening monetary policy, but the market seems to be focusing on external factors.

[Image source=Yonhap News]

On the 14th, the yen-dollar exchange rate briefly rose to the low 145 yen range during trading in the Japanese foreign exchange market, the highest level since November last year.

Fear of a widening US-Japan interest rate gap has weighed down the yen's value. While the Fed rapidly raised interest rates starting in March last year, the Bank of Japan (BOJ) has maintained negative interest rates despite some policy adjustments. Investors, fearing a further widening of the interest rate gap, sold off the yen, causing its value to plummet.

Although the US Consumer Price Index (CPI) increase in July was moderate, the rebound in gasoline and food prices heightened fears of a further widening interest rate gap. The Wall Street Journal (WSJ) reported on the 13th (local time) that although the US CPI inflation rate declined in July, rising energy and food prices are hindering inflation control, and the Fed must prepare for turbulence in the coming months.

According to OPIS, an energy data and analytics provider, the price of regular unleaded gasoline was $3.84 per gallon as of the 11th, up 30 cents from a month earlier. Gasoline prices rose about 0.2% last month, but a larger increase is expected this month. Since gasoline prices lag crude oil prices, the recent rise in crude oil prices could push gasoline prices higher, accelerating inflation again. West Texas Intermediate (WTI) crude oil reached $82.82 last week, the highest since November last year, due to production cuts by Saudi Arabia and Russia and improved US economic outlook. Stephen Stanley, chief economist at Santander US Capital Markets, analyzed, "This will raise the gasoline component of the August CPI by more than 10% and the monthly CPI by about 0.6%, potentially pushing the annual CPI inflation rate up to 3.6%."

Food prices are also a factor. US food prices rose by an average of 1% per month until September last year, then stabilized with a 0.1% increase from March to June this year. However, in July, the increase expanded again to 0.3%. Notably, the food producer price index rose 0.5% month-on-month in July, the highest level since November last year.

Concerns are emerging that the US CPI, which rose moderately last month, could rebound due to rising gasoline and food prices. Last month's US CPI rose 3.2% year-on-year, exceeding the previous month's increase of 3.0%. Amid forecasts that it will take time to confirm inflation control in the US, concerns about prolonged Fed tightening have strengthened the dollar. Although the BOJ tightened its yield curve control (YCC) policy last month, it maintained negative interest rates as before, which appears insufficient to stop the yen sell-off.

Currently, the yen-dollar exchange rate has fallen back to the 144 yen range. As the yen's value dropped to the psychological support level of 145 yen, the possibility of intervention by Japanese foreign exchange authorities has arisen. Previously, when the yen-dollar exchange rate surpassed 145 yen in September last year, the Japanese Ministry of Finance purchased yen and pushed the exchange rate down to the 140 yen range.

Daisuke Uno, chief strategist at Mitsui Sumitomo Bank, said, "(As the yen falls) concerns about market intervention are growing, and the foreign exchange authorities are more likely to engage in verbal intervention. However, actual intervention is unlikely to occur in the near future."

Meanwhile, the dollar index, which measures the dollar's value against major currencies, rose 0.097% from the previous trading day to 102.95. The euro traded at 1.0931 euros against the dollar, down 0.12%.

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