Yen Slides To TwoDecade Low As InterestRate Gap Widens
(Bloomberg) - The Yen hit a 20-year low on Tuesday against the dollar, helping to widen the gap between Japanese and US yields, sparking speculation of a possible intervention.
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The currency fell 0.8% against the dollar to 132.96, the lowest level since April 2002, placing the benchmark Treasury yield at a close above 3%. It is falling to a seven-year low against the euro and the Australian dollar, and is putting pressure on the Japanese government to react to rising prices.
Japanese businesses and households are increasingly complaining about the negative effects of the weaker yen as costs and electricity bills rise. Further cuts will jeopardize the consensus between the central bank, which has decided to cut inflation, and the government, which is desperate to avoid a cost-cutting crisis ahead of next month's national elections.
Rewrite the yen's historic decline from the Global Monetary Strategy
Takuya Kanda, executive director of the Gaitame.com Research Institute, said: . " "Technically the next target is 135.15, so 132 and 133 are getting very close to that target."
The yen is in a downward spiral this year as the Dovish BOJ anchors local yields to boost the weaker economy, while the U.S. rises in anticipation of the equivalent of high interest rates. The currency has also suffered from its position as an energy importer in Japan amid rising oil prices.
On Tuesday, Japanese Finance Minister Shuichi Suzuki said the government was tightly monitoring the currency, and reiterated that irregular measures could be detrimental.
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The Japanese Yen is the language guide for politicians
In a speech on Monday, Bank of Japan Governor Haruhiko Kuroda said tightening the policy was not yet discussed, adding that more time was needed to revive the economy as the country did not see wage growth. “In this situation, tightening monetary policy is not an appropriate measure,” he said, advising banks to focus on strengthening economic activity.
Jun Kato, chief market analyst at Shinkin Assets in Tokyo, said Kuroda's remarks had helped boost yen sales, highlighting differences in monetary policy. The Australian Reserve Bank expects interest rates to rise 50 points more than expected, while the European Central Bank is announcing that it will suspend its purchases of assets this week before raising borrowing costs in July.
“The yen cross is likely to rise as market prices rise as the European Central Bank rate rises, and Australia is also confident of the rate hike, which could lead to a weaker yen against the Australian dollar,” Kato said.
According to Brendon McKenna Wells Fargo strategist, the dollar-yen deviation is likely to end soon.
“We expect the Fed to continue to rise and the Bank of Japan to keep interest rates unchanged,” he said. "As long as this strength continues, the yen will continue to weaken."
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