The Japanese yen has plunged below the crucial 145 threshold, marking its lowest value this year. As a result, market spectators are pondering if Japanese authorities might intervene in the exchange rate. Upcoming Japanese economic data this week could play a pivotal role in this scenario.
On Monday, the yen-to-dollar exchange rate witnessed significant fluctuations, at one point plummeting to 145.22, its lowest since November 10, 2022. However, it later rebounded and is currently trading at 1 dollar to 144.93 yen, roughly unchanged from the previous day.
It's worth noting that this level is close to where it stood around the end of 2022 when the Bank of Japan intervened in the market, hovering near the 145 mark. Furthermore, since late June of this year, the yen-to-dollar exchange rate hasn't surpassed 145.
Back in September of last year, when the yen's rate surged past 145, Japanese officials stepped in, stabilizing the rate back to approximately 140.
So far this year, the yen has declined by 9.4% against the U.S. dollar, making it the poorest performer among major developed market currencies.
With the yen falling below this "critical psychological support level" of 145, traders are now speculating that Japanese authorities might take action.
A strategist from Saxo Bank shared that this week's Japanese GDP and CPI data could be crucial, and U.S. data might further drive up Japanese bond yields.
Traders remain vigilant, monitoring whether Japanese officials might intervene. Yet, the lack of verbal intervention to date suggests they might be adopting a patient stance.
On July 28, the Bank of Japan revised its yield curve control program (YCC), permitting more "flexible" control of 10-year bond yields. The bank also declared it would purchase 10-year Japanese bonds at a fixed 1% interest rate, higher than the previous 0.5%.
Though this move seems like a tightening measure, its intensity remains relatively limited. The Bank of Japan has consistently indicated that tweaks to the YCC aren't steps toward exiting its ultra-loose monetary policy.
Carol Kong, a strategist at Commonwealth Bank of Australia, commented in a report that after recent lackluster wage and PPI data, expectations for the Bank of Japan to tighten its policy have dwindled, which has supported the rise of the dollar against the yen.
Japanese stocks opened lower today, with the Nikkei 225 index down 1.27% at the time of writing.
