The yen against the dollar was the weakest for a while since 1990

Steam rate USD / JPY today was briefly at its highest level since 1990, violating the peak of October 2022. Thus, at one point the USD/JPY rate was almost 152 yen per dollar.

Will there be an intervention on the yen?

The Japanese yen weakened to 152 per dollar, falling to its lowest levels since 1990, as, despite a rate hike, investors appear to have bet on monetary policy Bank of Japan will remain accommodative for some time. BOJ board member Naoki Tamura said the risk of a sharp rise in inflation and the need for the central bank to quickly tighten monetary policy remains low.

Last week, the BOJ raised interest rates for the first time in 17 years and ended eight years of negative interest rates, in a decision that markets hailed as well-planned. Meanwhile, the yen's weakness prompted new verbal intervention from authorities.

Top currency diplomat Masato Kanda said the currency's weakness did not reflect fundamentals and described the latest moves as speculative. The weakening yen forced Finance Minister Shunichi Suzuki to step up warnings against market intervention.

Suzuki said on Wednesday that Japanese authorities will "take the highest measures" to ensure currency market stability, stressing that the decision on specific monetary policy steps rests with the Bank of Japan (BoJ). He stressed the importance of coordination between the Japanese government and the BOJ on future policy. In addition, the Governor of the BOJ Kazuo Ueda stated that "if the situation deteriorates rapidly," the BoJ would not rule out "taking any options."

What could be the reason for the yen's weakness?

Carry trade is a strategy in which you borrow a low-interest currency and use it to buy various types of assets. This is a form of cheap borrowing and taking advantage of the large difference in interest rates. For example, American investors can borrow yen, then convert it into the higher-interest dollar and buy American assets. All this continues until both the underlying assets increase, such as stocks, and investors benefit from the exchange rate difference, i.e. the increase in USD/JPY and the interest rate difference. Any change in these parameters may end the carry trade strategy, which may put pressure on the core markets and the USD/JPY exchange rate. An example of the rapid closing of the carry trade occurred during the Great Financial Crisis, when the Japanese currency rapidly appreciated in value.