Japan’s yen weakens to its lowest level in nearly 40 years, increasing pressure on policymakers. USD/JPY climbed above 162, reaching as high as 161.96-162.38, the strongest dollar level against the yen since December 1986. The move has taken the currency beyond the 161.95 level that triggered Japan’s intervention in July 2024.
The Bank of Japan raised its policy interest rate to 1% on June 16, the highest since 1995. However, the rate hike has done little to support the yen as investors expect the US Federal Reserve to keep interest rates higher for longer.
Japan’s government is expected to call for “appropriate” monetary management in its latest policy guidelines, a move seen as an effort to discourage the BOJ from raising rates too quickly. Earlier, Japan carried out a record 11.73 trillion yen foreign exchange intervention, with reports suggesting it sold foreign assets, including US Treasuries, to support the yen.
Finance Minister Katayama and Chief Cabinet Secretary Kihara said the government is ready to take action in the currency market if needed, but declined to comment on specific exchange-rate levels. Officials repeated that they are prepared to respond appropriately to excessive currency moves at any time.
Meanwhile, Japan’s Nikkei 225 erased earlier gains of more than 1% to trade lower, while the 20-year Japanese government bond yield rose 2 basis points to 3.57%.
Bank of Japan policy board member Ayano Sato said more companies are passing higher costs on to consumers, and the BOJ should stay alert to the inflation risks from a weaker yen. She added that monetary policy should remain focused on controlling inflation.
Sato said fiscal policy should support households and businesses facing higher prices. She did not comment on the timing or pace of future rate hikes, saying the BOJ must balance downside risks to economic growth with upside risks to inflation.
Former BOJ executive Kenzo Yamamoto said the next interest rate hike could come before December. He noted that Japan’s underlying inflation has averaged around 3% over the past four years, above the BOJ’s 2% target, although the official core CPI stood at 1.4% in May due to government cost-of-living support measures. He said the BOJ should continue tightening policy to keep inflation under control.
