Yen May Push Past 140 per Dollar

The Japanese yen (^USDJPY) today fell back slightly from Monday’s 24-year high of 137.75 yen/dollar after Japanese Finance Minister Suzuki jawboned the yen higher when he warned that the slump in the yen is causing alarm in the Japanese government and he’ll take “appropriate measures if necessary” to halt the spiral. 

The likelihood of a sustained rebound in the yen in the medium-term appears slim, however, with several bearish factors continuing to weigh on the currency.  The divergence in central bank policies is the major bearish factor weighing on the yen, with the BOJ insisting it will maintain quantitative easing (QE) and record-low interest rates, even though other global central banks are ending their QE programs and raising interest rates.

The yen has tumbled -16% against the dollar this year, making it the worst performer among G-10 currencies.  Citigroup says the yen has garnered little safe-haven support this year from the sell-off in global stock markets, and even if market sentiment in equities improves, this could encourage further selling of the yen.  Japan’s surging trade imbalance is another factor pressuring the yen. JPMorgan Chase projects Japan’s ballooning trade deficit will climb to a record this year, providing fresh impetus to push the yen lower.

Sustained strength in energy prices could weigh further on the yen.  Japan is a net importer of crude oil and is feeling the blow of elevated oil prices.  Capital.com said the yen would continue to be a natural asset to sell as Japanese import costs soar due to surging energy prices.  Bank of Montreal said the dollar-yen would push above 140 yen/dollar if crude prices climb back to $125 per barrel. 

Comments today from U.S. Treasury Secretary Yellen signaled the U.S. is unwilling to support intervention in the forex market to halt the depreciation of the yen.  Yellen met with Japanese Finance Minister Suzuki today, which bolstered speculation that Japan might intervene in the currency market to prop up the yen, perhaps in joint intervention with the U.S.  However, Yellen said that “only in rare and exceptional circumstances is intervention warranted, and we did not discuss intervention.”  The last time the two countries intervened jointly to support the yen was in 1998. 

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