By
Tolu Ajiboye
May 15th, 2023
While the Japanese currency is headed towards a downward trajectory, the US dollar has displayed a strong uptrend since the close of July.
The Japanese yen experienced a massive decline on Monday, August 14, slipping to its lowest level against the US dollar for the first time since November 2022. This downward trajectory resulted in the yen breaking through the crucial 145 mark. According to a CNBC report, the currency briefly touched the same level last Friday before eventually recovering some ground.
The decline has brought about speculation that the country’s central bank, the Bank of Japan (BOJ), may intervene to restore the value of the Japanese currency. A recent Forex report released by HSBC on Monday provided insights into the potential outcomes of the bank’s support.
The report suggested that the Japanese Ministry of Finance might consider intervention within the range of 145-148 to stabilize the yen’s decline. It’s worth noting that both the BOJ and the Japanese government had previously intervened by purchasing yen when it breached the 145-to-dollar exchange rate in September 2022. One month after the government got involved, the currency declined further to 150% against the US dollar.
Japanese Bonds Hit 10-Year High As BOJ Modifies Policy
However, HSBC also noted the possibility of short positions on the yen increasing further if the BOJ and Japanese authorities choose not to intervene this time.
The report highlighted that these positions had been reduced by over 30% in July, coinciding with the buildup to the BOJ’s monetary policy meeting on July 28. The BOJ said during the conference that it would offer to purchase 10-year Japanese government bonds at a fixed rate of 1% in a move that aims to expand the trading band on long-term yields.
The central bank further stated that it would still maintain the previous 0.5% cap on these yields, making it look more like a reference point rather than a rigid limit. Reacting to the news, the country’s bonds surged to a 10-year high of 0.572% two weeks ago.
US Dollar Hits One Month High Despite Plummeting Yen
While the Japanese currency is headed towards a downward trajectory, the US dollar has displayed a strong uptrend since the close of July, with the dollar index surging from its July 13 low of 99.77 to its current level of 102.99.
HSBC drew attention to a “new factor” contributing to the strength of the dollar – particularly, the elevated longer-term US yields due to concerns about the country’s budget deficit and treasury supply. The bank acknowledged that this might be a temporary phenomenon, occurring alongside the existing USD framework that is not signaling a robust downtrend for the US dollar.
Japan to Unveil Its Gross Domestic Product Tomorrow
Meanwhile, Japan is gearing up to reveal its gross domestic product (GDP) data for the quarter ending in June on Tuesday, August 15.
Additionally, inflation figures for July are set to be released later this Friday. HSBC highlighted that any deviations in the data could strengthen negative sentiments.
Market experts are projecting a 0.8% growth in GDP on a quarter-on-quarter basis, and the core consumer price index, excluding fresh food prices, is expected to reach 3.1%, as a Reuters poll indicates.
