Investing.com – The Japanese yen hit its lowest level in 34 years on Tuesday, with USDJPY falling above 154, despite repeated government warnings of possible intervention in the foreign exchange market.
At 10:57 pm ET (0257 GMT), the pair, which measures how many yen it takes to buy one dollar, was trading at 154.31, its highest level since 1990. It has grown significantly over the past two sessions.
The yen’s weakness came even as top Japanese finance and currency diplomats warned against excessive speculation in currency markets. The Japanese government set record dollar selling levels at the end of 2022, the last time the USDJPY pair tested 1990 levels. Current levels of the currency pair are significantly higher than 2022 levels.
“Traders continue to speculate where the Bank of Japan’s red line is when it comes to intervention to strengthen the yen. One thing we know for sure: it wasn’t 152.00,” Trade Nation analysts said in a note.
The yen also saw little safe-haven demand, with traders sticking largely to gold and the dollar as worsening geopolitical tensions in the Middle East dampened risk appetite.
US rate fears this will be a key driver of USDJPY gains
USDJPY’s latest surge comes after US data for March was hotter than expected, further bolstering the inflation outlook. Inflation figures in the US for the month also exceeded expectations.
The widening gap between US and Japanese interest rates has been a key factor weighing on the yen over the past two years. With US rates now expected to remain high for an extended period of time, USDJPY is likely to remain supported in the coming months.
The yen received limited support from the Bank of Japan’s historic interest rate hike in March, given the central bank has given scant signals about future rate hikes.
Media reports this week suggested that the Bank of Japan is taking a more discretionary approach to setting monetary policy that places less emphasis on inflation. This trend may indicate that rising inflation in Japan will provide limited support for the yen.
Japanese inflation data for March will be published later this week. They are expected to show inflation remains well above the Bank of Japan’s annual target of 2%.
The Bank of Japan also provides updated forecasts for inflation and economic growth. The central bank is expected to raise its forecasts, especially as wage growth picks up in 2024.