The yen has weakened again in the foreign exchange market, with the dollar approaching the ¥160 threshold. The backdrop is renewed acceleration in U.S. inflation and growing expectations of a rate hike.
The yen was in the upper ¥158 range in Tokyo trading on 11 November and moved into the upper ¥159 range in overseas markets. The yen weakened against a backdrop of renewed acceleration in U.S. inflation and growing expectations of a rate hike.
U.S. October CPI rose 0.4% month on month, exceeding the 0.3% market forecast, and expectations for an additional rate hike in December rapidly strengthened. The U.S. 10-year Treasury yield temporarily exceeded 5%, increasing the appeal of dollar assets.
Federal Reserve Governor Waller was said to have suggested a large 0.5 percentage-point rate hike, while the market sees a 0.25% rate hike in December as the most likely outcome. The BOJ raised its policy rate to 1.25%, and additional rate hikes are also being discussed, but the interest-rate differential remains wide.
Concern over foreign exchange intervention by the government and the BOJ is increasing, and ¥160 may not be the only intervention level. If the yen's weakness continues, the speed of market movements and speculative activity will attract attention.
A weaker yen boosts exporters' profits, but is also expected to have negative effects, including higher prices for imported goods and reduced household purchasing power. Some view long-term restraint of the yen's decline as difficult unless the conflict between fiscal and monetary policy is resolved.