On the 27th, the Japanese yen traded at its lowest against the dollar in 38 years. Despite a series of statements from Japanese monetary authorities warning against a weaker yen, the yen continued to trade at the 160 yen level due to strong selling pressure against the backdrop of the absolute interest rate differential between Japan and the US.

The weak yen in bond prices has led to widespread speculation that the Bank of Japan will be forced to raise interest rates soon, pushing long-term interest rates to their highest in a month. Stocks fell for the first time in four trading days on concerns about currency intervention and the earnings outlook for U.S. semiconductor memory maker Micron Technology.

On the night of the 26th, Finance Minister Masato Kanda commented on the current weakening of the yen, saying, “Recent exchange rate movements are in one direction,” and “We will take necessary measures against excessive movements.” Finance Minister Shunichi Suzuki also indicated a stance of not hesitating to intervene again on the 27th, saying, “We will analyze the background of this movement with a high sense of urgency and take necessary measures if necessary.”

Regarding the possibility of currency intervention, Yukio Ishizuki, senior currency strategist at Daiwa Securities, said, “They should be prepared, it’s just a matter of timing,” but added, “They may not do it if the market is on guard.”

Foreign exchange

The yen has risen to the lower 160 yen range against the dollar in the Tokyo foreign exchange market. The yen has weakened to its lowest level in about 38 years, and with Japanese monetary authorities repeatedly making cautionary statements, there is concern about the possibility of yen-buying intervention. On the other hand, there is also strong demand to sell yen and buy dollars due to the high interest rate differential between Japan and the United States.

Sony Financial Group senior analyst Juntaro Morimoto pointed out, “Yesterday, the yen weakened without any particular material, and speculative movements have emerged.” With growing concerns about currency intervention, he said, “The yen weakened at a rapid pace, so the selling of the yen has of course subsided.”

The yen broke through the 160 yen mark during European trading hours on the 26th, falling below the 34-year low of 160.17 yen recorded on April 29th. Following Kanda’s comments, the yen hesitated to fall temporarily to 160.02 yen, but then plummeted to 160.87 yen, the lowest level since 1986. According to Ishizuki of Daiwa Securities, “Kanda’s comments are losing their impact as the market consensus is that the finance minister will be replaced.”

Bonds

Bond prices fell on the 27th. Long-term interest rates rose to their highest level in a month. In addition to the rise in long-term interest rates in the U.S. market, the accelerating depreciation of the yen in the foreign exchange market has raised concerns that the Bank of Japan will raise interest rates at an early stage. The two-year bond auction held on this day was successfully completed, due in part to the rise in interest rates.

Takahiro Otsuka, senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities, said the two-year bond auction went smoothly to be fair, and while there were concerns over the Bank of Japan’s interest rate hike expectations at its July meeting, the demand turned out to be solid, and the morning rate hike also helped.

However, the impact of the auction results on the overall market was limited. Otsuka said, “Investors are aware that the long-term interest rate is at 1.1%, which was set on May 30, but it is unclear whether there will be any buying at that point.”

stock

Tokyo stock prices fell for the first time in four business days, with the Nikkei average dropping by more than 400 yen at one point. The yen weakened again against the dollar to the 160 yen range, and concerns about foreign exchange intervention and the earnings outlook for U.S. company Micron were discouraged, leading to weaker shares in the export sector, including precision equipment stocks and rubber product stocks, including those related to semiconductors. Pharmaceutical and food stocks also fell. Meanwhile, financial stocks such as banks and insurance companies were strong, driven by rising interest rates.

Among the top traders, SCREEN Holdings, whose investment rating was downgraded by Mizuho Securities due to concerns about a decline in investment in semiconductor front-end manufacturing equipment in China, as well as Tokyo Electron and Keyence, are also down. Daiichi Sankyo, which received a notice from the U.S. Food and Drug Administration (FDA) that its lung cancer treatment drug cannot be approved under the current circumstances, also fell.

Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, said that with growing concerns over intervention, there is a risk that the yen will appreciate rapidly, and considering the volatility, “it’s difficult to buy export-related stocks.” He also said that after-hours declines in Micron shares and U.S. stock futures also had an impact.

–Interview cooperation: Toshiro Hasegawa.

More stories like this are available on bloomberg.com

©2024 Bloomberg LP