The Japanese yen has reached its lowest level against the US dollar in over 30 years, prompting emergency action from Japan’s financial authorities, according to reports from the Wall Street Journal. After hitting 160.17 yen per USD, Japan intervened to halt the decline and support its currency, which is the third most-traded in the world. Sources have revealed that the Bank of Japan conducted an overnight intervention, resulting in a 1% weakening of the US dollar against the yen. Prior to the intervention, the USDJPY was trading close to 160, but it dropped below 155 after authorities stepped in. The yen had been weakened by diminishing expectations of interest rate hikes by the Bank of Japan, while the US Federal Reserve remains hawkish. The USDJPY is currently at 156.
Adam Kobeissi, editor-in-chief of The Kobeissi Letter, attributes this situation to out-of-control deficit spending. He highlights the fact that the conversion rate for 1 US dollar has gone from 130 yen to 160 yen, a significant change for a major currency. The Bank of Japan has kept interest rates near 0% despite the decline in their currency. Although the bank raised interest rates last month for the first time since 2007, the yen has lost nearly 20% of its purchasing power against the US dollar in the past year. Kobeissi views this as a warning of the consequences of excessive deficit spending. Japan currently has a debt-to-GDP ratio of over 260%, while the US is projected to reach a ratio of around 170% in 30 years. Kobeissi emphasizes the need to reduce deficit spending now to avoid burdening future generations.
The volatility in the yen’s value coincides with the upcoming meeting of the Federal Reserve. As Fortune reports, the market anticipates that Chairman Jerome Powell will maintain a pause on high interest rates in light of a recent surge in inflation. Powell is expected to address reporters after the Fed’s rate decision on Wednesday, and it is widely anticipated that borrowing costs will remain at a more than two-decade high. The market now expects any rate reductions to occur no earlier than 2024, with investors betting on at most two cuts by the end of this year. Bloomberg notes that the Fed’s next moves will be critical for Japan. The yen’s movement occurs just before the US central bank’s policy meeting, during which it may indicate the need to keep interest rates elevated due to persistent inflation. This would support the US dollar and undermine the attractiveness of yen assets. Earlier this month, Japan’s finance minister expressed concerns about the yen’s decline to US Treasury Secretary Janet Yellen, which market participants interpreted as laying the groundwork for intervention.