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    Japanese Yen Hits 24-Year Low Against Dollar - Financial Times

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    Japanese Yen Hits 24-Year Low Against Dollar - Financial Times

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    ZHANG WEIJIA HCI
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    Japanese yen hits 24-year low against dollar _ Financial Times

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    Japanese Yen Hits 24-Year Low Against Dollar - Financial Times

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    ZHANG WEIJIA HCI

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    Yen

    Japanese yen hits 24-year low against dollar


    Strong US economic data widen gap between borrowing costs in the two countries

    The yen plunged past ¥141 to the dollar on Tuesday to levels not seen since 1998 © Reuters

    Leo Lewis in Tokyo 5 HOURS AGO

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    We’ll send you a myFT Daily Digest email rounding up the latest Yen news every morning.

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    The yen on Tuesday plunged to its lowest level against the US dollar since August 1998 as
    hedge funds in Europe and the US resumed bets that the Bank of Japan’s ultra loose
    monetary policy would continue.

    Japan’s currency dropped as much as 1.7 per cent to a low of ¥142.97 against the dollar in a
    ferocious sell-off that began late in the Tokyo day and accelerated in the New York trading
    session.

    The BoJ has defied the tightening trend among global central banks, maintaining a
    programme that keeps long-term borrowing costs pinned at ultra low levels even as yields
    surge in other markets. The widening gulf has severely dented the allure of holding the yen
    relative to other currencies.

    Yen selling gathered steam on Tuesday after a key survey showed that activity in the US
    services sector unexpectedly picked up in August. The data prompted a further jump in US
    and European bond yields as traders bet the Federal Reserve would continue this month with
    its programme of big rate rises to tame inflation.

    A clutch of Wall Street banks have also said they expect the European Central Bank to raise
    interest rates this week by the most since 1999, something that could place yet more pressure
    on Japan’s currency.

    The BoJ unlike its counterparts is still aiming to keep a lid on long-term borrowing costs,
    through a mechanism known as “yield curve control”, in which it has pledged to buy an
    unlimited quantity of bonds to keep the 10-year government bond yield from rising above
    0.25 per cent. In comparison, the US 10-year yield traded at 3.35 per cent on Tuesday. Funds
    often shift into countries whose debt offers higher returns.

    Traders said that over the course of August, leveraged funds, which had previously wagered
    heavily on the yen’s decline and had helped drive its long descent since March, began to
    reduce those positions on concerns that the rising risk of recession would cause central banks
    to turn more dovish.

    However, the Fed signalled at the Jackson Hole meeting last month that the US rate cycle
    was not finished and this appears to have revived the flow of speculative money into the
    “short yen” bet.

    JPMorgan analyst Benjamin Shatil said there was now a vacuum in terms of trading barriers
    for the yen. “We do not rule out an eventual extension in yen toward the 1998 high of around
    147, particularly now that the market is comfortable with the idea that 140 is not a line in the
    sand,” he said.

    Earlier on Tuesday, Japan’s finance minister Shunichi Suzuki said the yen’s sharp moves
    were undesirable and that he was watching the plunge with a “great sense of urgency”. The
    remarks closely echoed comments he made last week, which have yet to convince the market
    that Japanese authorities are poised for anything more than verbal intervention.

    In a note to clients entitled “Staring into the abyss”, Joey Chew, senior Asia FX strategist at
    HSBC, noted the yen’s increasingly unusual relationship with risk indicators. The Japanese
    currency, said Chew, was now negatively correlated with the Vix index, a key measure of
    expected volatility in US equities, meaning it weakens as equity market volatility rises.

    But the phenomenon could prove temporary. “After higher terminal rates by major central
    banks are more fully priced in by the market, the yen’s negative correlation with risk
    sentiment is likely to normalise,” wrote Chew.

    Copyright The Financial Times Limited 2022. All rights reserved.

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