The yen continued to be under pressure as the Japanese currency fell to 162.83 against the US dollar, its lowest level in 40 years.
The fall sparked speculation that the Japanese government would intervene in the market again after spending 11.7 trillion yen or about US$73.5 billion in April and May to support its currency.
However, analysts believe that the intervention can only slow the yen's decline, not change the direction of the market. The main cause of the weakness of the Japanese currency is still the large interest rate gap between the Bank of Japan (BoJ) and the US Federal Reserve (Fed).
Although the BoJ has raised interest rates to 1%, the rate is still much lower than in the United States. This situation continues to encourage investors to sell the yen to buy US dollar-denominated assets that offer higher returns.
The interest rate gap has also fueled carry trade activity, a strategy of borrowing yen at low cost to invest in higher-yielding assets. As long as this strategy remains attractive, demand for the dollar is expected to continue to outpace the yen.
At the same time, the market still expects the Fed to keep interest rates high for longer if US inflation and economic growth remain strong. This stance is expected to continue to support the US dollar and make it difficult for Japan to strengthen the yen.
The currency movement also shows that the yen's weakness is not solely due to domestic factors in Japan, but is instead driven by a broader strengthening of the US dollar.
So far this year, the yen has fallen about 3.9% against the US dollar, but only fell about 0.9% against the euro, indicating that the strength of the dollar is one of the main factors weighing on the Japanese currency.
