Yen falls to weakest level since 1986, raising intervention fears

The yen fell to its weakest level since 1986 on Tuesday, with the dollar climbing as high as 162.66 yen before last trading at 162.59. The move put direct intervention back on the table in Japan.

A weaker yen helps some Japanese exporters by making their goods cheaper in dollar terms, and May’s trade figures showed the upside: exports rose for a ninth straight month, helped by the lower currency, higher commodity prices and solid semiconductor demand. The same move hurts households and import-dependent companies inside Japan. The Finance Ministry said the trade balance swung to a 378.6 billion yen deficit in May as the weak currency inflated the value of imports, pushing up the cost of energy, food and other essentials.

Finance Minister Satsuki Katayama said on June 5 that authorities were ready to respond appropriately at any time and reserved the right to take decisive action against excessive foreign-exchange volatility. Japanese policymakers repeated that warning on June 9, saying they stood ready to act decisively against excessive yen falls while staying alert to rising bond yields. Even after the Bank of Japan raised its policy rate by 25 basis points to 1.00% on June 16, its highest level since 1995, the currency kept weakening.

Thursday’s U.S. nonfarm payrolls report is expected to show about 110,000 jobs added and unemployment at 4.3%. The dollar has strengthened in part on expectations around Federal Reserve policy, and a firmer U.S. rate outlook would keep pressure on the yen.

Japan spent 5.92 trillion yen on April 29, 2024 and another 3.87 trillion yen on May 1 in record yen-buying intervention, later disclosing a total of 11.7 trillion yen, or about $73.5 billion, for the month.