The Zhitong Finance App learned that while the yen exchange rate continues to hover around a 40-year low, Japan's Finance Minister Katayama Satsuki used the strongest wording in a few weeks, clearly stating “We will take decisive action at any time if necessary.” This statement is usually interpreted by the market as a signal that the Japanese government is preparing to directly enter the market to interfere with the exchange rate. She declined to comment on the specific level of the yen exchange rate.
On Friday morning, the yen exchange rate was around 162.43 yen to the dollar. The yen remained largely unchanged against the US dollar after Katayama Satsuki's speech.
The yen exchange rate did not fluctuate significantly, indicating that the effectiveness of simple verbal intervention is weakening, and the market is awaiting actual financial support.
The Japanese government used a record amount of 11.73 trillion yen (about 72.2 billion US dollars) between April 28 and May 27 to interfere in the foreign exchange market to support the yen, and it seems that no further action has been taken since then.
Although the Japanese government initially supported the yen's market entry intervention, the currency then fell again. The yen fell to 162.84 against the US dollar on July 1, the lowest level in nearly 40 years.
Katayama Satsuki warned at the end of June that bold action would be taken, but since then he has generally used the milder phrase “appropriate action will be taken.”
The market is at the 165 mark
Options indicators show that the Japanese government may allow the yen to continue to weaken slightly in the short term. Traders believe that the fall of the yen to the 165 mark against the US dollar may be a trigger for the Japanese authorities to step in.
The 165 mark attracted much attention. Goldman Sachs strategists recently raised the USD/JPY exchange rate forecast for the next 12 months from 155 to 165. The bank believes that factors such as the high interest rate spread between the US and Japan, the continued increase in fiscal pressure on Japan, and the slow pace of interest rate hikes by the Bank of Japan will continue to suppress the performance of the yen.
The widening spread between the US and Japan is the core driver of the weak yen. Since the beginning of May, interest rate spreads on two-year treasury bonds between the US and Japan have continued to widen, and the exchange rate of the US dollar against the yen has risen simultaneously. Long-term options also confirm this trend: the one-year risk reversal indicator, which excludes disturbing signals of short-term intervention, turned moderately bullish for the first time since late 2022.
According to the latest forecast accuracy ranking, Vikram Muraka, founder and chief foreign exchange strategist of Kshitij Consultancy Services, which ranks first in USD/JPY predictions, predicts that the yen may depreciate to 170 yen per dollar next year. He added that Japan's Ministry of Finance “has clearly weakened its ability to change the direction of the market.”