Amanda Cooper
LONDON (Reuters) – The dollar traded above 150 yen for a sixth day in a row on Tuesday as investors lost confidence that Japan’s era of ultra-low interest rates will soon end with the country in recession, while the yuan shrugged off depreciation China’s key lending rate.
Japanese Finance Minister Shunichi Suzuki said on Tuesday that authorities are “closely monitoring currency movements with a high degree of urgency” – a phrase he has used previously – and said the yen exchange rate is determined by a number of factors.
In 2024 alone, the yen has lost 7% in value, having surpassed 150 against the dollar on February 13. In the past, traders have viewed the 150 mark as a line in the sand for the Bank of Japan and the Foreign Ministry. Financing that could trigger intervention, as was the case at the end of 2022.
This time the move was more gradual and volatility was moderate, suggesting there was no immediate nervousness on the part of Japanese authorities or currency traders.
“I think (monetary authorities) will have to walk a very fine line ahead of the next few BOJ meetings because there is an expectation that they will raise rates and then what will happen to the yen?” Kathleen Brooks, director of research at XTB, said:
For much of 2023, the market had been pinning hopes that the Bank of Japan would end its policy of keeping rates below zero, which allowed it to set a floor for the yen. But with Japan in recession and inflation-adjusted wage cuts, the currency has fallen significantly.
“Perhaps they are coming to the end of the road with zero rates, and perhaps the fact that they are not intervening in the foreign exchange market is a sign that they are going to do it organically, by normalizing interest rates, which is much more traditional and a functional way to manage your forex market,” she said.
Even with the dollar trading above 150, the options market over the past few days has shown a growing preference among traders for call options on the US currency against the yen rather than call options on the dollar.
However, the dollar held steady on the day at 150.185 and should be supported for now by waning expectations for a quick rate cut by the US Federal Reserve following better-than-expected US producer price and consumer price data last week.
On the other hand, Japan’s economy, which unexpectedly fell into recession in the final quarter of last year, has prompted investors to rethink the Bank of Japan’s chances of a short-term exit from zero rates.
“At the moment, the data coming out of Japan tells us that things are not as rosy as what the Bank of Japan would like to see to start moving away from negative interest rates,” said Rodrigo Catril, senior currency strategist at National Australia Bank. (OTS:).
Meanwhile, China has cut its benchmark mortgage rate. The drop comes on top of other efforts to boost credit demand and revive the property market, but the yuan has struggled near a three-month low as investors say more policy support is needed to shore up fragile confidence.
In the offshore market, the yuan strengthened slightly and traded at 7.2028 per dollar.
The euro rose 0.1% to $1.07985, while the pound stabilized at $1.2598 against the dollar.
Against the euro, the pound hit its longest stretch of daily losses in 2024, eyeing a fifth fall after Bank of England Governor Andrew Bailey said UK inflation did not need to return to its 2% target to justify rate cuts.
The index, which tracks the US currency’s performance against six other currencies, fell 0.15% to 104.13.
In cryptocurrencies, Bitcoin pared earlier losses, rising 0.7% to $52,313, having gained 22% in February.