The yen continued to decline as it fell to its weakest level against the US dollar since 1986. The development raised concerns that Japanese authorities may intervene again to stabilize the country's currency.
In New York trading, the yen surpassed 161.95 against the US dollar before falling again to around 162.40 in Tokyo trading on Tuesday. The level surpassed the record low recorded in July 2024 when Japan previously intervened to support the yen's value.
Although Chief Cabinet Secretary Minoru Kihara and Finance Minister Satsuki Katayama issued statements regarding the currency's weakness, the market did not show a significant reaction.
Unlike the situation in 1986 when the yen strengthened after the US-backed currency agreement, this time the Japanese currency continued to trend downward.
The weak yen gives an advantage to exporting companies because it increases the competitiveness of their products abroad, thus helping the Japanese stock market to remain strong.
However, the negative impact is increasingly felt by consumers as import costs rise, especially for oil and gas traded in US dollars. This has pushed up prices of goods and utility bills, adding to pressure on the cost of living.
Although the Bank of Japan (BOJ) ended its negative interest rate policy in 2024 and raised its benchmark interest rate to 1% on June 16, the move has failed to provide much support to the yen.
This is because investors still expect the Federal Reserve (Fed) to keep US interest rates high.
The wide interest rate gap between Japan and the United States continues to encourage investors to borrow in low-cost yen before investing in higher-yielding assets abroad.
At the same time, markets are also worried that the Japanese government may urge the BOJ to slow down interest rate hikes further to support economic growth.
Previously, Japan spent a record ¥11.73 trillion on currency market interventions between April 28 and May 27 after the yen broke through 160 against the US dollar.
The move is believed to be financed through the sale of part of the country's foreign asset holdings, including US Treasury bonds.
