Dollar-yen holds in low ¥159s as intervention concerns and yen-selling pressure collide

In Tokyo trading on the afternoon of the 13th, dollar-yen briefly came under stronger yen-buying pressure and fell to ¥159.18 per dollar, a new low for the day. Euro-yen also weakened in tandem. Foreign-exchange intervention is believed to have been conducted in late July, but yen selling had regained the upper hand recently. Dollar-yen subsequently recovered some ground, although downward pressure remains a concern.

The day's trading ranges were ¥159.18 to ¥159.48 for dollar-yen, ¥183.44 to ¥183.78 for euro-yen, and $1.1520 to $1.1531 for euro-dollar.

Market sentiment is increasingly focused on the view that the effects of the foreign-exchange intervention believed to have been conducted in late July have run their course and that renewed pressure for yen depreciation is building. Dollar-selling, yen-buying intervention conducted by the Ministry of Finance in late July briefly pushed dollar-yen back into the ¥150s, but the unwinding of yen carry trades driven by the Japan-U.S. interest-rate differential subsequently paused, and the yen weakened to the ¥159 range.

Market concerns over the economic policies of the Takaichi administration are behind the pressure to sell the yen. With Prime Minister Takaichi pursuing an expansionary fiscal policy, the market is focused on the risk of deteriorating public finances due to increased government bond issuance and pressure for the Bank of Japan to prolong monetary easing, both of which are weighing on the yen. Some market participants have pointed out that “as long as an expansionary fiscal policy stance continues, the yen's structural weakness will be difficult to eliminate.”

Euro-yen moved in tandem with dollar-yen. On the 13th, it briefly fell to ¥183.44 per euro but subsequently held above ¥183.50. Euro-dollar continued to trade in a narrow range in the low $1.15s.