The early March tightening of monetary policy by the Bank of Japan not only failed to reverse the situation but also exacerbated the yen's weakening trend. Considering the Federal Reserve and the European Central Bank are less than three months away from the widely anticipated rate cut, the systemic pressure facing the yen has triggered more concerns.
Alex Kuptsikevich, a senior analyst at FxPro, noted: On Wednesday morning, the U.S. dollar rose to 151.97 against the yen, surpassing the high points of November 2022 by 7 points and October 2022 by 4 points, when intervention measures significantly reversed the exchange rate. Wednesday's high was the highest point since 1990.
The 152 level appears to be a tested intervention area to prevent the yen from weakening. In recent days, we have heard repeated statements from government and central bank officials that there is no fundamental reason for the yen to devalue. These sound like the threats of intervention, which are dangerous for short-term speculators.
Moreover, this is the third time in two years that the yen has reached this level. In the previous two instances, we observed a strong and sustained reversal, and the market is close to forming a reflex towards this level.
However, the bulls also have a strong argument.
Corrections are becoming increasingly mild. After nearing 152 in 2022, the U.S. dollar against the yen fell by 16% over three months. However, in 2023, the decline was about 7.5%. At the end of February, the currency pair slowly rose to 151, then sharply fell, but bounced back after a 3.5% decline.
The initial surge of the U.S. dollar against the yen in 2022 positively contributed to inflation, as at its peak, the currency pair was more than 33% higher than a year earlier. The yen's long-term volatility is decreasing, and inflation is steadily stabilizing around the target of 2%. Hence, it is pointless for the treasury and the Bank of Japan to continue treating 152 as a red line. In the coming months, we may see more commentary, and possibly more policy rate hikes, but no as drastic foreign exchange interventions as in 2022 or the end of 2023.
