The Japanese yen just tapped its worst level against the US dollar in more than three decades, reportedly triggering emergency intervention from the country’s financial authorities.
After touching 160.17 per USD, Japan moved to stop the slide and prop up the world’s third most-traded currency, reports the Wall Street Journal.
“The U.S. dollar weakens 1% versus the Japanese yen, following what people familiar with the matter told The Wall Street Journal was an overnight intervention by the Bank of Japan.
The USDJPY traded close to 160 before authorities jumped in, driving the cross below 155. The Japanese currency had been weakened by fading expectations for near-term interest rate increases by the Bank of Japan, while the U.S. Fed remains hawkish. The USDJPY is now at 156.”
The Kobeissi Letter editor-in-chief Adam Kobeissi says this is what happens when deficit spending spirals out of control.
“The conversion rate for 1 US Dollar has gone from 130 Yen to 160 Yen, a massive change for a major currency. This comes as the Bank of Japan kept interest rates near 0% even as their currency is sliding. Last month, the Bank of Japan raised interest rates for the first time since 2007. Still, their currency has lost nearly 20% of its purchasing power against the US Dollar over the last year…
[This is] a preview of what happens when deficit spending gets out of control. Japan currently has a 260%+ Debt-to-GDP ratio. In 30 years, the US is expected to hit a ~170% Debt-to-GDP ratio. Future generations will pay for our mistakes. We must reduce deficit spending now.”
The volatility comes as the Federal Reserve prepares to meet this week. As Fortune reports, the market expects Chairman Jerome Powell to maintain a pause on high interest rates amid a fresh spike in inflation.
“Powell will address reporters after the Fed’s rate decision on Wednesday, when the central bank is widely expected to hold borrowing costs at a more than two decade high. Expectations for rate reductions have been pushed further into 2024, and investors are now betting on two cuts at most by year-end.”
Bloomberg notes the Fed’s next moves will be crucial for Japan.
“The move in the yen comes before the US central bank is scheduled to hold a policy meeting during which it may signal the need to keep interest rates elevated amid sticky inflation — a move that will support the dollar and undermining the appeal of yen assets…
Earlier this month, the nation’s finance minister also flagged concerns over the yen’s decline to US Treasury Secretary Janet Yellen, which market participants saw as laying the groundwork for intervention.”
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