Japanese Yen Drops to 40-Year Low; Authorities Warn of "Decisive Action If Necessary"

▲ US Dollar and Japanese Yen

The value of the Japanese yen fell to its lowest level in 40 years today (July 22).

While authorities have strongly hinted at the possibility of market intervention, skeptical views have been raised regarding its effectiveness.

According to the Nihon Keizai Shimbun (Nikkei), the yen exchange rate entered the 163 yen range per dollar in the New York foreign exchange market yesterday, and continued to fluctuate in the 163 yen range in the Tokyo foreign exchange market today.

This is the first time the yen exchange rate has recorded the 163 yen range per dollar since December 1986, marking the lowest level for the yen's value in 39 years and 7 months.

Analysts attribute this to the continuation of yen-selling pressure driven by an expansionary fiscal stance highlighted in the basic economic and fiscal policy guidelines known as "Bonebuto," announced yesterday by Prime Minister Sanae Takaichi's cabinet, alongside dollar-buying pressure stemming from instability in the Middle East.

The dollar-yen exchange rate, which had been moving in the 162 yen range earlier this month, rose to the 163 yen range as expectations for a shift toward active fiscal policy grew. This followed changes in yesterday's Bonebuto guidelines, such as replacing the phrase "fiscal consolidation" with "fiscal sustainability."

Nikkei reported that the depreciation was further deepened as market participants who had previously bought yen—anticipating potential market intervention by the Japanese government and the Bank of Japan, or expectations that Japanese public pension funds like the Government Pension Investment Fund (GPIF) would expand investments in domestic financial assets—began selling the yen back.

Regarding foreign exchange trends, Japanese Finance Minister Satsuki Katayama hinted at preparations for market intervention, stating, "If necessary, we will take appropriate and decisive action at any time."

While emphasizing, "I will refrain from commenting on specific exchange rate levels," she stressed, "Our policy remains unchanged."

However, the market reportedly showed little reaction to these remarks.

Nikkei analyzed that this is because critical views are spreading, suggesting that government intervention in the foreign exchange market alone cannot serve as a fundamental solution to the yen's weakness.

Some market opinions suggest that the likelihood of the government and the Bank of Japan stepping in with additional foreign exchange interventions—selling dollars and buying yen—is low.

Rinto Maruyama, a strategist at SMBC Nikko Securities, made these remarks, saying, "Although the value of the yen has fallen to historic levels, the volatility of the yen exchange rate remains stable at a low level," adding, "We view the temporary lower bound of the yen's value at around 165 yen per dollar."

He also added, "Amid ongoing rises in crude oil prices, even if government intervention takes place, the effects will be difficult to sustain, much like the yen-buying intervention seen from late April to early May."

Meanwhile, a footnote was added to the Bonebuto guidelines finalized yesterday mentioning the independence of the Bank of Japan. This reportedly came after an initial draft containing the phrase "it is important that appropriate monetary policy operations are conducted" regarding the Bank of Japan caused shocks to the bond market and other sectors.

However, pointing out that this footnote also heightened anxiety,

Shinsuke Nakazato, an economist at Resona Bank, criticized, "By explicitly writing in the obvious premise that the Bank of Japan is independent, it newly imprinted the notion that there are people in the government who do not think that way."

(Photo: Yonhap News)

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