According to a report from China Central News Agency, on Friday morning at the New York Foreign Exchange Mall, the exchange rate of the Japanese yen to the US dollar fell to 155.75 yen per dollar, hitting a new low in nearly 34 years.
The overnight release of the Personal Consumption Expenditures (PCE) Price Index for the first quarter of the United States saw an annualized increase of 3.4% compared to the previous year, reaching a new high. Excluding food and fuel prices, the focus PCE increased by 3.7%, far exceeding the Federal Reserve’s target of 2%.
After the data was released, shopping malls estimated that the Federal Reserve would further delay the first interest rate hike, and many investors estimated that the “first hike” of the year would fall in December, so they sold yen and bought the US dollar.
So far this year, the Japanese yen has risen by about 9.4% against the US dollar, the worst performance among major developed country currencies. Investors estimate that the Japanese government is able to stop interfering and provide support for the yen.
Previously, Japanese Finance Minister Junichi Suzuki and other senior officials stated that they are closely monitoring exchange rate trends and will make necessary adjustments.
Takao Ochi, an official of the ruling Liberal Democratic Party in Japan, said in a rejection of an interview with Reuters that there is currently no discussion within the ruling party about the extent to which the yen needs to be devalued and that there is a need for commercial intervention. However, if the yen falls further against the US dollar to 160 or 170, “this can be seen as excessive and can encourage decision-makers to consider adopting behavior.”
The current round of yen appreciation began in early 2022, when the Federal Reserve began rapidly raising interest rates to cope with inflation. Subsequently, many central banks followed suit. However, due to domestic deflation, the Bank of Japan had to inherit the strategy of holding back on interest rates, and in the face of huge interest rate spreads, the yen exchange rate depreciated again and again. From 2022 to 2023, the Japanese yen appreciated by approximately 22% against the US dollar. Although the Bank of Japan ended its interest rate strategy in March this year, the strategy rate after the rate hike is still close to zero.
In addition, the escalating tensions in the Middle East have led to an increase in oil prices and also put pressure on the appreciation of the Japanese yen. Due to Japan’s severe self-sufficiency in power, this will increase the demand for the US dollar.
The mall is looking forward to the latest strategic decision issued by the Bank of Japan on Friday. The Bank of Japan implemented its first rate hike in 17 years at a strategy rally in March, raising the strategy rate from -0.1% to the range of 0 to 0.1%, and closing the Yield Curve Mastery Strategy (YCC). Bank of Japan Governor Kazuo Ueda previously stated that if the yen appreciates significantly and drives up inflation, the central bank may raise interest rates again.
The analyst does not agree with this. Almost all economists who rejected Bloomberg’s investigation estimate that the Bank of Japan will remain silent at this gathering.
Piotr Matys, senior foreign exchange analyst at British investment firm Touch Capital Markets, stated that although interest rate hikes are more interesting than foreign exchange intervention in supporting the yen, the potential it generates is minimal.
The Federal Reserve will also convene a rate meeting next week, and investors generally estimate that the Fed will keep its pillar strategy rate unchanged. The Federal Reserve will also update the March Consumer Price Index on Friday. If the index shows strength, it will further exacerbate the strength of the US dollar.
The Japanese government once failed three times in 2022, spending over 9 trillion yen (approximately 58 billion US dollars) to interfere with shopping malls in support of the yen. This behavior was largely not criticized by domestic allies, including the United States.