Japanese Yen Plummeted to Weakest Level Since 1990

ASIA — On Thursday, the world’s third-largest economy, Japan, hit a consequential 150 Yen (JPY) per 1 USD price level — the lowest since August of 1990, representing an astonishing 32-year low. This groundbreaking currency slide is yet another testament to worsening global economic conditions as the dollar continues its rally. Hence, this makes it more problematic for the rest of the world, who, like Japan, have no choice but to use USD for international trade, back up their respective currencies, and of course, pay their outstanding foreign debts.

Japan’s Worsening Economic Dilemma

Since the start of the year, the Japanese yen has already lost roughly 30 percent of its value versus the USD. Moreover, its arguably maturing economy is coupled with its existing demographical situation of an aging population, which compounds the effects of the current economic downturn in the country beyond the persistent global issues.

As a response to hitting the crucial psychological support level of the JPY, Japan’s Central Bank, Bank of Japan (BOJ), announced on the same day an “emergency bond-buying operations,” which will allow the BOJ to purchase 100 billion yen (roughly $667 million) worth of Japanese government bonds with maturities of 10–20 years and subsequently a tranche also worth 100 billion yen with maturities of 5–10 years.

Japanese Finance Minister Shunichi Suzuki said the government will take “appropriate steps against excess volatility.” In addition, he remarked that this bond-buying protects the currency during the short-term turbulent economic sentiment. “The recent rapid and one-sided yen declines are undesirable. We absolutely cannot tolerate excessively volatile moves driven by speculative trading.”

Incidentally, this move is also a major response to Thursday’s breach of the central bank’s pledged 10-year government debt yield ceiling of 0.25%. Furthermore, since the economic downturn, the BOJ has constantly vowed to purchase an “unlimited quantity of bonds at a fixed rate” to restrict the 10-year government debt yields at 0.25% as one of the stimulus measures for the Japanese economy.

Yen’s Prospect Moving Forward

According to Derek Halpenny, the Head of European Global Markets Research at MUFG, the recent move may boost confidence in the stability of the yen in the currency market. “The (Ministry of Finance) has been very clear that they are ready to intervene if there is any disorderly price action, so the markets are priced for that coming at some point in time.”

“Obviously, if we break clearly above 150 [price level], we may see some disorderly price action, and that could be the catalyst for some action,” he added. However, he highlighted that the pair would need a decisive price action movement to trigger additional government intervention.

On the other hand, Edward Moya, a Senior Market Analyst at OANDA in New York, stressed that despite the Japanese government intervention, the yen remains to be overwhelmingly bearish. “Until you see either the BOJ change their tune, or if we start to see the U.S. economic outlook deteriorate a lot quicker that will help the Fed finally deliver that Fed pivot, you’re going to see that the bet against the yen is still the favorite trade in the Foreign Exchange Market.”