Rikimaru
Member
The Japanese yen has been under pressure in the past few years as markets focused on the wide U.S.-Japan interest rate differentials.
The yen lost more than 20 per cent against the dollar since the outset of 2022, prompting several rounds of intervention by Tokyo to prop up the currency in September and October that year. It kept falling despite further intervention in April and May 2024, touching a 38-year low of 161.96 to the dollar on July 3. Japan is suspected to have stepped in again in mid-July to put a floor under the yen.
The yen's downtrend has reversed in recent days, following the Bank of Japan's July 31 decision to raise interest rates and ahead of an expected loosening of U.S. monetary policy.
The BOJ's hawkish move, along with investors' concerns about U.S. growth, jolted global stock and bond markets. It triggered an unwinding of the carry trade, whereby investors borrow cheaply in yen to invest in higher-yielding assets. The yen rebounded sharply against the dollar, but remains relatively weak by the standards of the past few decades.
The yen's fluctuations matter because the currency has long provided a cheap source of funding for global investors, even as other central banks raised borrowing costs.
BOJ'S SHIFTING INTERVENTION GOAL
Japanese authorities had historically intervened to prevent the yen from strengthening too much, as a strong yen hurts the export-reliant economy. This trend changed in 2022, when Tokyo stepped in and bought yen to defend its value, after the currency plunged on expectations that the BOJ would keep interest rates ultra-low even as other central banks tightened monetary policy to combat soaring inflation.
The yen lost more than 20 per cent against the dollar since the outset of 2022, prompting several rounds of intervention by Tokyo to prop up the currency in September and October that year. It kept falling despite further intervention in April and May 2024, touching a 38-year low of 161.96 to the dollar on July 3. Japan is suspected to have stepped in again in mid-July to put a floor under the yen.
The yen's downtrend has reversed in recent days, following the Bank of Japan's July 31 decision to raise interest rates and ahead of an expected loosening of U.S. monetary policy.
The BOJ's hawkish move, along with investors' concerns about U.S. growth, jolted global stock and bond markets. It triggered an unwinding of the carry trade, whereby investors borrow cheaply in yen to invest in higher-yielding assets. The yen rebounded sharply against the dollar, but remains relatively weak by the standards of the past few decades.
The yen's fluctuations matter because the currency has long provided a cheap source of funding for global investors, even as other central banks raised borrowing costs.
BOJ'S SHIFTING INTERVENTION GOAL
Japanese authorities had historically intervened to prevent the yen from strengthening too much, as a strong yen hurts the export-reliant economy. This trend changed in 2022, when Tokyo stepped in and bought yen to defend its value, after the currency plunged on expectations that the BOJ would keep interest rates ultra-low even as other central banks tightened monetary policy to combat soaring inflation.
