The yen fell to around 152 against the dollar on the morning of September 8. The exchange rate had approached 164 yen in late July but dropped to the low 155 yen range following a joint intervention by the U.S. and Japan. However, it returned to the 160 yen level by the end of August. Just a week later, the yen plummeted nearly 8 yen to the 152 range. The break of the previously strong 155 yen support level prompted not only short-term speculators but also long-term investors to liquidate their yen positions. Market observers are divided on whether the yen will hover in the mid-150s for the time being or trend back toward 160 yen as the year progresses.
In Tokyo's foreign exchange market, the yen-dollar exchange rate briefly dropped to 152.88 yen, nearing this year's low of 152.11 yen recorded on January 28. The euro-yen exchange rate also fell to 178.86 yen, the lowest level since mid-November of last year.
Trading was subdued the previous day due to the U.S. Labor Day holiday. Amid this backdrop, the exchange rate quickly broke below the 155 yen mark. The Nihon Keizai Shimbun reported on September 8 that the breakdown of the 155 yen level, which had served as a strong support during Japan's unilateral interventions in April and the U.S.-Japan joint intervention at the end of July, led to a surge in stop-loss dollar selling and yen buying, accelerating the downward trend.
Analysts suggest that this decline is not limited to short-term speculators. Yusuke Okada, a senior researcher at Mitsubishi UFJ Trust Bank, stated, "Both hedge funds and long-term investors are unwinding their yen selling and dollar buying positions, indicating a shift in market dynamics."
The backdrop for this position liquidation is the expectation that the Bank of Japan (BOJ) will accelerate its interest rate hikes. BOJ Governor Kazuo Ueda hinted at the possibility of rate increases during a press conference on September 1. The market is nearly pricing in a 0.25 percentage point increase in the policy rate at the BOJ's monetary policy meeting scheduled for September 17-18. There are also growing expectations that the BOJ may continue to raise rates every three months or that the terminal rate could be higher than previously anticipated. If this occurs, the interest rate differential between the U.S. and Japan may narrow more quickly, reducing the appeal of trading yen for dollars.
Additionally, concerns about potential joint intervention by U.S. and Japanese authorities are encouraging yen buying. U.S. Treasury Secretary Scott Vessenst recently reiterated strong support for Japan taking decisive market and monetary policy actions to address the yen's significant undervaluation. Following these remarks, speculation has increased that U.S. and Japanese authorities may engage in joint intervention to correct the yen's depreciation. However, there are cautious views regarding whether the recent drop in the exchange rate was indeed a result of actual intervention. Mitsuhiro Ueda, a foreign exchange analyst at Daiwa Securities, told Asahi Shimbun on September 7, "If it were actual intervention, the yen would have appreciated much more sharply than this."
Moreover, expectations for easing tensions in the Middle East have weakened dollar buying pressure. On September 7, Iran's Foreign Ministry announced that negotiations with Oman regarding a temporary route in the Strait of Hormuz have entered the final stages, with a potential agreement possible within days. This has tempered the movement to buy dollars amid Middle East instability, and expectations are growing that Japan's trade balance will improve if international oil prices stabilize.
The 155 yen level that was breached the previous day may now act as a resistance level against further increases in the exchange rate. Makoto Noji, a senior foreign exchange and foreign debt strategist at SMBC Nikko Securities, told Nikkei on September 7 that even if the exchange rate rebounds, there is a high likelihood of yen buying orders coming in as it approaches 155 yen, suggesting a potential drop to 152 yen this week. He added that if the BOJ raises rates and adopts a more hawkish stance at the meeting on September 17-18, the yen could fall to 150 yen.
Shusuke Yamada, a senior Japan foreign exchange and interest rate strategist at Bank of America Securities, noted that the yen has strengthened not only against the dollar but also against other currencies, viewing the recent decline in the exchange rate as a correction of excessive yen depreciation, and he forecasts an exchange rate of 149 yen by year-end.
However, there are also predictions that the yen-dollar exchange rate could rise back to the 160 yen level. According to the Yomiuri Shimbun, Tsuyoshi Ueno, a senior economist at NLI Research Institute, stated that the BOJ may find it difficult to raise rates beyond market expectations, and concerns about expansionary fiscal policy during the year-end budget formulation process may resurface, leading to a rebound in the exchange rate toward 160 yen as the year progresses. Daisuke Karakama, a chief market economist at Mizuho Bank, mentioned to Nikkei that while there is a possibility of the exchange rate falling below 150 yen this year, long-term pressures for yen selling, such as increasing foreign direct investment and a growing digital deficit, remain, indicating that the risk of a renewed yen depreciation toward 160 yen persists.
* This article has been translated by AI.
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