The yen weakened to its lowest since November against the dollar as traders shifted their focus from a hawkish Federal Reserve to Friday’s Bank of Japan policy decision.
The relatively hardline stance from Fed officials on Wednesday stands in sharp contrast to BOJ policymakers who have stuck with monetary easing even as global peers tighten, a disparity that favors the US currency. The Fed projected borrowing costs will go higher than previously seen, while almost all of the economists surveyed by Bloomberg see the BOJ leaving its ultra loose policy unchanged Friday.
The Japanese currency fell 1% to around 141.50 per dollar, with its weakness triggering comments from Chief Cabinet Secretary Hirokazu Matsuno that excessive movements weren’t desirable. Last month when the yen weakened to similar levels, top currency official Masato Kanda said that the government would take action if needed, after an unscheduled meeting between the BOJ, Ministry of Finance and Financial Services Agency.
“Given the market movements and the Fed’s policy outlook, there is growing possibility that the three-way meeting will be held and such concern will probably grow in the market,” said Takeshi Ishida, currency strategist at Resona Bank Ltd. “However, the upside of the dollar-yen may be limited as the US Treasury yields haven’t risen that much.”
The benchmark Treasury yield climbed 4 basis points to 3.83% in Asia trading Thursday, with its Japanese counterpart little changed at 0.42%. The widening gap between the two played a huge part in pushing the yen to a three-decade low last year.
Demand for the dollar was also likely influenced by Japanese importers, who typically buy the greenback on trading days that are a multiple of five such as the 10th, 15th and 20th of any month.
Looking ahead to Friday, BOJ officials likely see little need to adjust their yield curve control program given some improvement in the functioning of the bond market, according to people familiar with the matter. Governor Kazuo Ueda said earlier this month that the BOJ has consistently stated it will maintain easing until its price goal is achieved in a stable manner, feeding further into speculation the central bank will stay pat in coming months.
BOJ’s Ueda Likely to Hold With Bond Market on His Side for Now
Last year, the yen weakening toward 146 per dollar triggered Japan’s first intervention to prop up the currency since 1998, though in the build up to that there were repeated official warnings about direct action. The Japanese currency has fallen more than 7% this year.
“A sustained break above 141 opens the door for levels above 142 to be tested and potentially quite quickly,” said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney. “Intervention is unlikely to do much to arrest yen weakness, it merely offers an opportunity to reset shorts.”
(Updates with yen move. A previous version corrected the date of Fed comments.)
