(Bloomberg) — The yen weakened below the critical 150 level against the dollar in early Asian trading on Monday, driven by the significant yield gap between Japan and the US. This persistent weakness has traders on high alert for potential intervention by Japanese authorities in an effort to stabilize the currency.
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The Japanese currency briefly touched 150.11 against the greenback before quickly bouncing back, influenced by options-related selling of the dollar. As of 5:37 a.m. Tokyo time, it was trading at 149.85.
The breach of the psychological level of 150 raises concerns among investors about the likelihood of intervention, especially after Finance Minister Shunichi Suzuki emphasized the importance of stability in foreign exchange markets and their reflection of economic fundamentals. However, he refrained from commenting on the current yen level.
Traders are also keeping a close eye on escalating tensions in the Middle East, elevated US Treasury yields, and the upcoming policy meeting of the Bank of Japan on Oct. 30-31. Safe-haven assets such as the dollar, yen, and Swiss franc are in focus following reports of rocket attacks on a US and international forces’ airbase in Iraq, signaling an escalation of hostilities involving regional militia.
At 4.91%, the US Treasury 10-year yield is nearly six times that of Japan’s equivalent at 0.835%. BOJ Governor Kazuo Ueda stated on Friday that the bank will maintain its accommodative policy stance to achieve a stable and sustainable 2% inflation rate.
In the meantime, investors are also processing a Nikkei report suggesting that the BOJ has initiated discussions on the potential adjustment of its yield curve control settings in response to rising long-term rates in the US. The source of this information was not disclosed.
The yen previously reached 150.16 on Oct. 3 but quickly rebounded to 147.43, fueling speculation that Japan had intervened in the market to support the currency. The following day, senior government officials opted to keep investors guessing by refraining from clarifying whether they had indeed intervened.
Last year, Japan performed its first intervention since 1998, spending around ¥9 trillion ($60 billion) in September and October. As a general principle, Japan’s chief currency official Masato Kanda stated that rate hikes and interventions are strategies employed to counter excessive currency movements. He pledged to take action if necessary to address extreme volatility, but did not comment on the recent market movements.
However, the International Monetary Fund has stated that it does not see any compelling reasons for Japan to intervene in the foreign exchange market to support the yen.
The widening divergence in monetary policy outlooks and yield gaps with foreign markets continue to exert downward pressure on the yen, making it the worst-performing currency against the dollar among the Group of 10 this year.
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