JPY/USD falls to around 139.5

International Business News – In the foreign exchange market on September 1, the yen fell against the dollar, at one point falling to around 139.5 yen per dollar, the largest level of yen depreciation (dollar appreciation) since September 1998 and in 24 years. While the Federal Reserve (FRB) continues to expand its view of rapid interest rate hikes, the Bank of Japan (BOJ) has adopted the attitude of continuing its massive monetary easing policy. The possibility of the yen exchange rate falling to 140 yen per dollar for the first time in 24 years began to emerge as the market continued to see a move to sell the yen and buy the dollar in anticipation of a widening interest rate differential between Japan and the U.S.

The yen’s decline on September 1 surpassed the recent low of 139.38 yen to the dollar set on July 14. At the Jackson Hole Conference, an economic symposium held in the U.S. from August 25 to 27, Federal Reserve Chairman Jerome Powell showed an attitude of continuing to raise interest rates to curb high inflation. As a result, the U.S. dollar strengthened as interest rates rose. The U.S. dollar also appreciated against the euro, and the euro exchange rate fell below the “Parity” (1 euro to 1 dollar) level, which increased.

At the beginning of 2022, the yen exchange rate has been hovering around 115 yen per U.S. dollar. However, the depreciation of the yen and the appreciation of the dollar accelerated since mid-March as the Federal Reserve turned to start raising interest rates for about three years. the lowest value (125.86 yen) since the implementation of Japan’s heterodox monetary easing policy, which was set in 2015, was broken in mid-April.

The high price of resources due to Russia’s attack on Ukraine was also seen as a factor in the yen’s depreciation. Due to Japan’s dependence on resource imports and widening trade deficit, the selling of the yen and buying of the dollar by importing companies are considered to have contributed to the depreciation of the yen. These sell-offs of the yen due to real demand were overlaid with speculators selling the yen, and the move to sell the yen and buy the dollar continued after the exchange rate broke through 130 yen per dollar at the end of April.

After hitting a recent low of 139.38 yen in July, speculation that the Fed would turn to lower interest rates as early as 2023 strengthened, and long-term U.S. interest rates fell to more than 2.5%, bringing the dollar’s appreciation to a temporary end. However, after the Jackson Hole meeting, the view that the U.S. will continue to raise interest rates rapidly again prevailed. Long-term U.S. interest rates rose above 3.1% and the dollar appreciated across the board.

The currency options market and others suggest that the yen will fall further, and market stakeholders are aware that the yen rate could break through 140 yen per dollar. If it falls below 140 yen per dollar, it will be the highest level of yen depreciation since August 1998.