By Supriya Singh,
With the Bank of Japan standing firm on its ultraeasy policy to support the pandemic-hit economy, the yen has further room to decline beyond the 150 zone against the U.S. dollar, a level unseen in 32 years.
The yen's breach of that historic level in Tokyo's currency market on Thursday came despite repeated warnings of an additional yen-buying intervention by Japan's monetary authorities.
The Japanese unit remains under pressure as market participants continued to bet on a further widening of the interest rate gap between Japan and the United States, where the Federal Reserve is raising rates at an unprecedented pace to fight inflation, and Treasury yields continue to trend upwards.
The divergence seems not to be temporary, and although Japan's September inflation data released Friday showed the sharpest rise in over 31 years of 3.0 percent from the previous year, well above the BOJ's 2 percent target, the figures have done little to raise expectations in the market about changes to its monetary policy.
With the Fed showing no signs of stopping its monetary tightening, and the BOJ remaining convinced that Japan's inflation is unsustainable, currency market experts say signs of a reversal in the dollar-yen trend are nowhere in sight.
"There won't be much getting in the way of chasing the Japanese unit's next milestone of 160," said Takuya Kanda, senior researcher at the Gaitame.com Research Institute.
The yen's further depreciation toward the 160 zone could happen at a similar speed to that seen over the past month, Kanda added.
At the beginning of September, the yen traded at the 139-140 level before dropping to around 144 by the middle of the month.
On Sept. 22, for the first time in 24 years, Japanese monetary authorities intervened to prop up the currency, which was then trading at the 145.90 level. They injected a record $19 billion into the yen-buying, dollar-selling operation, government data has shown.
Finance Minister Shunichi Suzuki repeatedly warned of "decisive" steps against volatile yen movements, but Tokyo would lose credibility with the market if it steps up the rhetoric but ultimately remains too cautious to intervene when needed to defend the currency" said Yuji Saito, head of the foreign exchange department at Credit Agricole Corporate & Investment Bank in Tokyo.
Japan and the United States' contrasting approaches mean that Tokyo's prospective currency market intervention is unlikely to make a significant difference, at least until the Fed indicates when it will begin to ease up on its policy of monetary tightening, experts said.
"The Fed has not increased rates at such a pace in the recent past. With the weakening U.S. housing market, we may start getting hints towards the end of this year" on how close the Fed is to pivoting away from its current approach, said Yukio Ishizuki, a senior foreign exchange strategist at Daiwa Securities Co.
Credit Agricole's Saito said Britain's political turmoil could add further pressure on the yen.
British Prime Minister Liz Truss announced her resignation Thursday, less than two months into the nation's top job after her massive tax cut plan backfired.
"If there is a power vacuum in Britain, then it will spur dollar-buying against the pound, making the greenback stronger against all other currencies, including the yen," Saito added.
Experts say that the weak yen's impact on the Japanese economy can be both positive and negative.
While a weak yen hurts domestic consumers due to higher costs of imported products, including natural resources, it is a boon for some businesses that benefit from inbound travelers spending more.
The weaker yen also helps Japanese exporters gain price competitiveness in overseas markets, and can boost the value of their repatriated profits.
The government should capitalize on the positive aspects of the weak yen and provide incentives to Japanese firms for moving some of their offshore manufacturing bases back to Japan, experts said.
"The situation has become such that people only talk about the negative sides of the weakening yen," Daiwa's Ishizuki said.
Related coverage:
Yen hits fresh 32-year low near mid-150 range vs. dollar
Japan dangles threat of "decisive" steps as yen slips past 150
Rapid, one-sided yen fall negative for Japan economy: Bank of Japan chief
