The yen has hit a new 24-year low against the US dollar, moving past the ¥145.90 level that prompted Japanese authorities to intervene last month to strengthen the currency for the first time since the late 1990s.
In early trading on Wednesday in Tokyo, the currency fell to ¥146.38 as the US dollar surged. The yen has lost more than 20 per cent of its value against the dollar this year.
The Japanese government spent $20bn to prop up the yen but analysts warned that such interventions would have little effect as long as the interest rate differential between the ultra-dovish Bank of Japan and the hawkish US Federal Reserve continued to widen.
“The market is in price discovery mode,” said Benjamin Shatil, foreign exchange strategist at JPMorgan. “The question is how far can the yen move before intervention happens.”
Shatil added: “The focus is on both the pace and the breadth of the move — if we move a few big figures in the space of a few hours and the move is judged to be specific to the yen as opposed to a broader dollar shake out, then the finger moves closer to the trigger.”
In an interview with the Financial Times this week, Japan’s prime minister Fumio Kishida signalled his support for the BoJ’s loose monetary policy, saying the central bank needed to maintain its policy until wages rose.
Kishida said he would continue to “work closely” with BoJ governor Haruhiko Kuroda, ruling out speculation that he would end Kuroda’s term prematurely or apply political pressure to cease negative rates.
The dollar has strengthened following Friday’s robust jobs data and ahead of an inflation report due on Thursday.
The US consumer price index is expected to register an annual rise of 8.1 per cent for September, which would mark a slight easing from 8.3 per cent growth in August. That is unlikely to stop the Fed from raising rates to tame inflation, according to analysts.
“The risk is not significant that the yen weakness becomes truly out of control during this cycle,” Bank of America strategists wrote in a report on Japan’s latest balance of payments and investment data. They noted that at the end of September, the country held $1.2tn in foreign reserves, the bulk of which they estimated to be US dollar assets.
But they added that only about $130bn of that total was likely to be short-dated securities with maturities of less than a year, or roughly 6.5 times the amount spent defending the yen in September.
That, along with limited repatriation by Japanese investors, was likely to keep support for the Japanese currency “passive and limited” until the dollar strength abated, they said.