The yen hovered just short of the psychological 145 level versus the dollar on Friday as a persistently wide interest-rate gap with the US weakens the Japanese currency.
(Bloomberg) — The yen hovered just short of the psychological 145 level versus the dollar on Friday as a persistently wide interest-rate gap with the US weakens the Japanese currency.
Investors are on guard for any sharp moves amid a holiday in Japan, which has reduced trading volumes and increased the risk of volatility.
The currency hasn’t breached 145 since June 30 and any depreciation past 145.07 would take it to levels seen in late 2022, when Japanese authorities intervened in the market. It was steady at 144.70 at 12:48 p.m. Tokyo time.
The yen has been under pressure all week and continued to slide during Thursday’s session as Treasury yields rose following a poorly received US 30-year bond auction. Benchmark 10-year Japanese government bond yields sit below 0.6%, versus about 4.1% for similar maturity Treasuries. Neither JGBs nor Treasuries were trading during Asian hours Friday due to the holiday in Japan.
While the BOJ adjusted its yield-curve control program on July 28 to make it more flexible — allowing 10-year rates room to move up toward 1% — this has failed to stem weakness in the currency. That’s partly because the central bank has also indicated it won’t tolerate a rapid move in yields, and bought JGBs to stem the climb.
The central bank has repeatedly said that its adjustments to YCC are not steps toward an exit from ultra-easy monetary policy. Japan is the only nation that maintains a negative interest rate, which continues to weigh on the yen.
“Weak expectations for Bank of Japan policy tightening, following the recent soft wage and PPI data, are supporting dollar-yen,” Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a note. “Also underpinning dollar-yen has been the spike in energy prices amid heightened concerns over gas supply.”
The bout of pronounced weakness in the currency late last year drew Japanese authorities into the market on three occasions, in what were their first such interventions to support the yen since 1998. The first of the forays came as it tumbled toward 146.
The yen has slumped 9.4% against the dollar this year, making it the worst performer among key developed-market currencies. It touched 159.21 per euro on Thursday, its weakest level against the single-market currency since 2008.
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