Japanese Yen Recovers from Three-Decade Low Fueling Suspicions of BOJ Intervention

By: Eliza Bennet

The alarming freefall of the Japanese yen against the US dollar reached significant levels, prompting discussions of Japanese authorities intervening in the foreign exchange market. This intervention followed the USD/JPY pair's surge past the psychologically significant 160 level, a point not reached since 1990. However, a subsequent drop to as low as 154.5 is likely due to reported intervention.

Defending the yen presents the Bank of Japan (BOJ) with a challenging dilemma. With over $1.2 trillion of US Treasuries as of February 2024, Japan holds a significant share of US debt. Utilizing this war chest could spike US yields, significantly impacting the global economy. Conversely, raising interest rates might not appear feasible to the BOJ considering its hesitation in the past. It has maintained negative rates at -0.1% since 2016 and only recently increased them to 0.1% in their April 26 meeting.

While higher US yields and rates could influence other major currencies such as the Euro and Pound, the BOJ finds itself between a rock and a hard place. As the yen's slide continues, the BOJ's measures for handling their debt-to-GDP ratio, exceeding a staggering 260%, and supporting the yen will be critically scrutinized in the coming times.