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Yen hits 34-yr low vs dollar as BOJ signals ultraeasy policy to stay

The yen briefly hit a 34-year low near the 152 line against the U.S. dollar Wednesday in Tokyo on renewed expectations the Bank of Japan will maintain its accommodative stance even after raising interest rates for the first time in 17 years.

The yen fell to 151.97 per dollar, its lowest level since 1990 after Bank of Japan board member Naoki Tamura said short-term interest rates would remain near zero for the time being, despite the central bank ending negative interest rates last week.

“Mr. Tamura was considered one of the more hawkish members among BOJ policymakers, but his comments suggested that he is not as eager as expected to hike rates,” said Takuya Kanda, senior researcher at the Research Institute.

Monitors in Tokyo displaying financial data show the Japanese yen trading at the weakest level in 34 years versus the U.S. dollar on the morning of March 27, 2024. (Kyodo)

However, the Japanese currency regained some ground later in the day after Finance Minister Shunichi Suzuki vowed to take “decisive steps” against excessive weakness in the yen, leaving investors wary of possible intervention by authorities.

The last time Japan stepped into the market was in October 2022, when it bought the yen against the dollar to defend its currency, which had fallen to 151.94.

“Given there is a precedent and the fall to 34-year lows, it was inevitable for the market to be cautious about a possible intervention,” said Kanda, noting that the minister appeared to have elevated his warning over the yen’s decline.

Suzuki told reporters that appropriate action would be taken “without excluding any options” to cope with excessive moves in the yen, driving speculation that the government may intervene in the currency market for the first time since late 2022.

He also said Japan will closely monitor developments in the foreign exchange market with a “high sense of urgency,” while Chief Cabinet Secretary Yoshimasa Hayashi, the top government spokesman, told reporters that excessive currency moves are “undesirable.”

Finance Minister Shunichi Suzuki speaks at a House of Representatives session in Tokyo on March 27, 2024. (Kyodo)

The phrase “decisive steps” is regarded as one of the strongest warnings to investors when the yen is excessively fluctuating as it is frequently used by the finance minister before the government steps in the foreign exchange market.

Later Wednesday, officials from the Finance Ministry, the Financial Services Agency and the BOJ held a meeting to discuss financial market conditions, with Japan’s top currency diplomat, Masato Kanda, in attendance.

News of the gathering sparked caution among investors regarding potential intervention, leading to an appreciation of the yen against the dollar.

Kanda, vice finance minister for international affairs, told reporters after the meeting that his ministry will take “all possible measures” to curb excessive moves in the yen, without ruling out the possibility of intervening in the market.

“It is obvious that speculative moves are behind the yen’s depreciation,” Kanda added.

If the government does decide to intervene in the currency market, the BOJ, as ordered by the Finance Ministry, would sell dollar-denominated assets it holds, such as U.S. Treasuries, to buy the yen, dealers said.

At a parliamentary session, meanwhile, BOJ chief Kazuo Ueda said the central bank is “closely” watching the impact of the yen’s movements on the economy and prices, but he declined to comment on currency market moves.

On March 19, the BOJ scrapped its negative interest rate policy in its first rate hike since 2007, overhauling the central bank’s unorthodox monetary easing framework that had been implemented over the past decade to fight deflation.

The central bank, however, pledged to maintain monetary easing for a while, prompting market participants to assume that the interest rate gap between Japan and the United States is unlikely to shrink sharply.

At 5 p.m., the dollar fetched 151.70-72 yen compared with 151.50-60 yen in New York and 151.32-34 yen in Tokyo at 5 p.m. Tuesday.

The euro was quoted at $1.0827-0828 and 164.25-29 yen against $1.0825-0835 and 164.10-20 yen in New York, and $1.0841-0843 and 164.05-09 yen in Tokyo late Tuesday afternoon.

The yield on the benchmark 10-year Japanese government bond fell 0.020 percentage point from Tuesday’s close to 0.715 percent, as the debt was bought on expectations of prolonged monetary easing by the BOJ.

Stocks started higher and extended gains throughout the day as the yen’s depreciation boosted export-related issues, and investors scooped up shares to secure dividend rights before the end of the fiscal year, analysts said.

The 225-issue Nikkei Stock Average ended up 364.70 points, or 0.90 percent, from Tuesday at 40,762.73. The broader Topix index finished 18.48 points, or 0.66 percent, higher at 2,799.28.

On the top-tier Prime Market, gainers were led by real estate, miscellaneous product and insurance shares.

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