Japanese Yen Hits Lowest Level Since 1986 Amid Intervention Warnings from Finance Minister

The Japanese yen weakened to its lowest level against the US dollar since 1986, reaching 162.68 yen per dollar, raising investor concerns about possible government intervention. Japan's Finance Minister, Shunichi Suzuki, stated the government is prepared to take decisive action against abnormal currency fluctuations, in line with agreements between Japan and the United States. Chief Cabinet Secretary Minoru Kihara emphasized the government's commitment to building an economy resilient to foreign exchange volatility and maintaining readiness to intervene if necessary, though he declined to comment on the yen's current level.

Julia Wang, Chief Investment Officer for North Asia at Nomura, noted that while intervention might occur due to the yen's historic low, its impact on broader markets is expected to be short-lived. She explained that intervention decisions depend on the nature of currency movements and dollar-yen dynamics rather than a specific exchange rate threshold. Wang highlighted that ongoing interest rate and real yield differentials between Japan and the US continue to support carry trades, which exert downward pressure on the yen.

Between April and May, Japan spent over 11.7 trillion yen from its foreign exchange reserves to support the currency. On April 30, the yen sharply strengthened to 156.6 per dollar from 160.39, sparking speculation of market intervention, but it soon weakened again. The Bank of Japan recently raised its benchmark interest rate to 1%, the highest in over 30 years, marking a continuation of monetary policy normalization amid rising inflationary pressures, partly due to energy price increases linked to tensions with Iran. Japanese government bond yields surged, with the 40-year yield rising to 3.779% and the 30-year yield to 3.914%.