Japanese Yen Slides to 1986 Low
The Japanese yen weakened to approximately 162.40 yen per U.S. dollar during Asian trading on Tuesday, marking its lowest level against the dollar since 1986 and slipping below the July 2024 low recorded the previous night. Chief Cabinet Secretary Minoru Kihara, Finance Minister Satsuki Katayama, and Prime Minister Sanae Takaichi issued verbal warnings urging caution, but their comments failed to halt the sell‑off.
Economic Impact
A weaker yen has boosted exporters’ earnings and supported Japan’s record‑high stock market, yet it has simultaneously increased the cost of dollar‑denominated imports, especially energy, raising living costs for households and intensifying political pressure on the Takaichi administration.
Price and Cost Pressures
Japan’s services producer price index rose 3.3 % year‑on‑year in May. Within this, ocean freight costs jumped 61.8 % and international air passenger fares rose 17.3 %, largely reflecting higher fuel prices.
Market Commentary
Nomura analysts noted that the yen’s continued weakness, despite lower oil prices and risk‑off capital flows, underscores persistent downside pressure. They added that the Finance Ministry is unlikely to intervene aggressively while the Takaichi government remains behind the curve.
Government Intervention
Tokyo intervened in the foreign‑exchange market, spending a record ¥11.73 trillion (US$72.4 billion) between 28 April and 27 May after the yen breached the ¥160 per dollar threshold.
Monetary Policy Context
The Bank of Japan raised its policy rate to 1 %, a three‑decade high, while the Federal Reserve’s hawkish stance has kept the interest‑rate differential attractive for carry‑trade strategies, prompting investors to borrow cheaply in yen and invest in higher‑yielding assets abroad.
Reporting
The article was reported by Roushni Nair for Investing.com.