Yen Plunges to Weakest Level in 40 Years, Japan on High Alert

The Japanese yen has tumbled to its weakest level against the US dollar in nearly four decades. During Asian trading on Tuesday, the currency touched 162.27 per dollar, a low not seen since 1986. The sharp depreciation has heightened market speculation regarding potential government intervention. Responding to the currency’s slide, Japanese Finance Minister Satsuki Katayama stated that authorities are prepared to take action if exchange rate fluctuations become excessive. “That includes taking decisive steps, as has been confirmed between Japan and the US,” Katayama said. Chief Cabinet Secretary Minoru Kihara echoed this sentiment, adding that the government would continue to strengthen the economic foundation to reduce vulnerability to exchange rate volatility, while remaining ready to intervene in the foreign exchange market if necessary. Julia Wang, Head of North Asia Investment at Nomura, noted that the yen’s decline to new lows increases the likelihood of government intervention. However, she cautioned that any impact on global markets would likely be temporary. “Intervention should not depend on a specific level. It depends on the nature of the currency move. But this is a new cycle high, so it could reignite domestic concerns about yen weakness,” Wang explained. She added that the outlook for the yen remains weak due to the persistent gap in interest rates and real yields between Japan and the US, which continues to fuel carry trades. Between April and May, the Japanese government spent over 11.7 trillion yen from its foreign exchange reserves to prop up the currency. The Bank of Japan has also tightened monetary policy, raising its benchmark interest rate to 1%, the highest level in over 30 years.