The yen fell temporarily against a backdrop of yesterday’s weak US PPI and lower crude oil prices, but selling pressure on the yen remains strong and concerns about government and Bank of Japan intervention are mounting.
The yen weakened temporarily to around ¥159.02 after the US Producer Price Index (PPI), released yesterday, came in below expectations and WTI crude oil futures fell. At the same time, some market participants believe that fundamental factors continue to exert strong selling pressure on the yen, which subsequently hit a new high of around ¥159.57.
While the yen’s downtrend is expected to continue in the Tokyo market, the market is on alert for yen-buying intervention by the Bank of Japan and the government. Some believe that the yen depreciation trend is likely to continue in the absence of intervention.
Historically, there are concerns about a scenario in which policymakers become unable to resist major market trends, as in the 1992 pound crisis and the 2015 Swiss franc shock. Some have suggested that a similar development may occur this time.
Factors cited as promoting yen depreciation include changes to the Takaichi administration’s fiscal consolidation policy, moves toward investment in the United States, and the Bank of Japan’s guidelines for conducting monetary policy. Some believe these policies are encouraging yen selling. The government and the Bank of Japan are exploring possible responses, including coordinated intervention with the United States and the use of funding tools.
The market’s focus may shift from movements above ¥164 to policymakers’ tolerance for further yen depreciation. It remains unclear whether the scale of intervention alone can halt the yen’s decline, and the sustainability of any response may become a key issue.