Yen tumbles to lowest since 1998 as policy driven fall continues

THE yen fell to a 24-year low and Japanese bonds tumbled on Monday (Jun 13) as the country’s easy monetary policy increasingly stood at odds with rising interest rates globally.

The currency fell more than 0.5 per cent to 135.19 per US dollar, the lowest since October 1998, as Treasury yields extended Friday’s inflation-shock driven gains and the Bank of Japan (BOJ) offered to buy more bonds to cap local equivalents. 

The yen has tumbled almost 15 per cent this year - the worst-performing major currency - as the BOJ keeps rates anchored to boost a sluggish economy while US yields surge on bets for continued Federal Reserve hikes. 

Friday’s shock higher-than-expected US inflation print has heaped pressure on the Fed to intensify monetary tightening, boosting the dollar. In sharp contrast, the BOJ looks set to maintain its super-loose stance at its meeting later in the week.

Senior Japanese officials had delivered a ramped-up warning on the yen’s decline on Friday, putting their concern in a written statement for the first time as they seek to keep a floor under the currency.

The weakening yen is expected to have a mixed impact on the domestic economy, hurting household budgets but providing a boost to exports. A further slide would increase pressure on neighbouring Asian economies, which are losing out in export competitiveness. 

“While Japanese authorities have stepped up warnings, there are few tools available to stop this momentum,” said Akira Moroga, manager of currency products at Aozora Bank in Tokyo. “The environment remains ripe for speculators to drive dollar-yen higher.”

With Japan’s government bond yields under severe upward pressure, the BOJ on Monday ramped up the defence of its policy targets, saying it would buy an additional 500 billion yen (S$5.2 billion) worth of 5-year and 10-year bonds on Tuesday.

The move came after the 10-year yield rose above 0.25 per cent for first time since January 2016, the highest since before the central bank introduced a negative rate policy and set a ceiling for the maturity.

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“The BOJ will now need to explain clearly what is the logic behind the 0.25 per cent cap and whether that level is appropriate under the current environment,” said Mari Iwashita, chief market economist at Daiwa Securities Co.

The BOJ is unlikely to adjust policy until the yen breaches the 140 level against the US dollar, a recent survey of economists by Bloomberg showed.

The US Treasury’s semiannual report on foreign exchange releasedon Friday may have added to the yen selling pressure, said Yuji Saito, executive director at Credit Agricole CIB’s foreign-exchange department in Tokyo. It suggested currency intervention should only be reserved for exceptional circumstances with prior consultation.

“It essentially rejected Japan intervening for yen weakness that came as a result of widening interest rate differentials because Japan is pursuing an easy monetary policy on its own decision,” Saito said. “Dollar-yen’s uptrend is unlikely to stop until US economy slows down or inflation peaks.” BLOOMBERG