The yen dropped to a seven-year low on Monday after the Bank of Japan’s latest move to keep a lid on bond yields underscored the central bank’s commitment to loose monetary policy at a time most other countries are raising interest rates. 

After a succession of big declines against the dollar, the yen fell to ¥125 on Monday afternoon, breaking through a level last reached in late 2015 and prompting traders to forecast further drops.

The immediate trigger of the yen’s move below ¥123 earlier in the day was the BoJ, which offered to buy an unlimited number of 10-year Japanese government bonds (JGBs) in order to prevent the yield on the benchmark notes rising beyond the central bank’s policy target. 

The offer came after yield on the 10-year JGB hit 0.245 per cent for the first time since January 2016, reaching the upper edge of the band implied by the BOJ’s yield curve control policy that aims to keep the rate “around zero”. Bond yields move in the opposite direction of prices.

Line chart of ¥ per $ showing Dovish Bank of Japan sends yen tumbling to lowest since 2015

The offer underlined the BoJ’s dovish stance even as the US Federal Reserve and many other major developed market central banks become more hawkish.

Currency analysts in Tokyo said that global clients were asking if the spiral could trigger a yen-supporting intervention by the ministry of finance for the first time since 1998.

Japan’s chief cabinet secretary Hirokazu Matsuno told a news conference that “it’s desirable for exchange rates to move stably, reflecting economic fundamentals”.

But Yujiro Goto, chief currency strategist at Nomura Securities, said that the likelihood of actual intervention by the Japanese authorities was quite limited.

Goto said that the level of the yen had moved significantly from the average ¥109 to the dollar assumption, forecast in the BoJ’s most recent Tankan survey in December.

He added that if the Japanese authorities did become worried about the speed of the yen’s decline, one initial move might be to declare an emergency meeting between the BoJ, ministry of finance and Financial Services Agency to discuss the matter. Such a meeting is a traditional signal of concern to the market, though it may produce no immediate action.

The yen has been pushed lower by the increasing gulf between the US and Japan’s ultra-low rates policy, Japan’s comparatively low growth and rising energy and commodity prices that hit the import-dependent country.

Naohiko Baba, chief Japan economist at Goldman Sachs, noted that the real effective yen rate was now at its lowest point since 1972, marking a substantial decline in the purchasing power of the Japanese currency.

Last Friday, Haruhiko Kuroda, BoJ governor, repeated his assertion that the weak yen was still “generally positive” for the Japanese economy, with the yen’s tumble boosting the shares of Japanese exporters.

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