Japanese yen on intervention watch as USDJPY sails past 154

The Japanese yen hit its weakest level in 34 years on Tuesday, with the USDJPY pair weakening past 154 despite repeated warnings from the government over potential currency market intervention. 

The USD/JPY pair- which shows how many yen are required to purchase one dollar- was trading at 154.31- its highest level since 1990- by 22:57 ET (02:57 GMT). It had surged substantially over the past two sessions.

Weakness in the yen came even as top Japanese finance and currency diplomats warned against excessive speculation in currency markets. The Japanese government had enacted record-high levels of dollar selling in late-2022, the last time USDJPY had tested 1990 levels. The currency pair’s current levels were well above those seen in 2022. 

“Traders continue to speculate where the Bank of Japan’s ‘red line’ is when it comes to triggering intervention to shore up the yen. One thing we do know, it wasn’t 152.00,” analysts at Trade Nation said in a note. 

The yen also saw little safe haven demand, with traders sticking chiefly to gold and the dollar as worsening geopolitical tensions in the Middle East dented risk appetite. 

US rate fears a key driver of USDJPY gains 

USDJPY’s latest surge came after U.S. retail sales data read hotter-than-expected for March, further underpinning the outlook for inflation. U.S. inflation readings for the month had also beat expectations.

The widening gulf between U.S. and Japanese interest rates has been a key weight on the yen for the past two years. With U.S. rates now set to remain higher for longer, USDJPY is likely to remain underpinned in the coming months. 

The yen took limited support from a historic interest rate hike by the BOJ in March, given that the central bank has offered scant cues on future rate hikes. 

Media reports this week said that the BOJ was adopting a more discretionary approach in setting monetary policy- one that places less emphasis on inflation. This trend could indicate that a pick-up in Japanese inflation will provide limited support to the yen.

Japanese consumer price index inflation data for March is due later this week, and is expected to show inflation remaining well above the BOJ’s annual 2% target. 

The BOJ is also set to meet next week and provide updated forecasts on inflation and economic growth. The central bank is expected to hike its forecasts, especially in the face of increased wage growth in 2024.

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