Yen Drops to 8-Month Low as Japan Hints at Possible Intervention
Japan’s yen is back under pressure, slipping to an eight-month low around ¥153 per dollar as markets test the government’s tolerance for further depreciation.
The sharp decline – nearly 4% in a week – has prompted Finance Minister Katsunobu Kato to warn that authorities are watching for “one-sided and rapid movements,” language traders often view as a prelude to possible intervention.
Political Winds Shift
The renewed selloff began after Sanae Takaichi unexpectedly won the Liberal Democratic Party’s leadership race, a result that signaled more aggressive fiscal spending and continued monetary easing. Despite her assurances that she doesn’t favor a weak yen, investors remain unconvinced.
Takaichi’s pro-growth stance, coupled with the Bank of Japan’s ultra-loose policy, has strengthened bets that rate hikes remain distant – leaving little support for the currency.
Markets Eye Intervention
Japan’s government has spent over ¥24 trillion ($160 billion) defending the yen since 2022, intervening repeatedly when the exchange rate approached ¥160 per dollar. Officials are now emphasizing the speed of the decline rather than a target level, suggesting they may act if volatility worsens.
“The goal is for exchange rates to reflect fundamentals,” Kato said – a familiar phrase often used just before Tokyo steps in.
Pressure on the BOJ
A weaker yen raises import costs and fuels inflation, complicating the BOJ’s October 30 meeting. Markets currently price only a 20% chance of a rate hike, though rising prices could force a shift.
Meanwhile, political uncertainty adds to market nerves as Takaichi struggles to secure a coalition deal with Komeito, leaving questions over fiscal direction unresolved.
For now, Tokyo appears to be betting that verbal warnings will calm traders. But if the yen keeps sliding toward its past intervention levels, words alone may not be enough.
Source: Bloomberg
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