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The yen has continued to weaken, hovering around the 160-per-dollar mark despite Japan's solid domestic fundamentals and expectations of an interest rate hike.
According to Reuters on the 9th (local time), the yen traded at 160.14 per dollar that day. With this, the yen continued its weakness, staying near 160 yen for the fourth consecutive trading session.
The 160-yen level is also known as the threshold at which Japanese Ministry of Finance authorities decide to intervene. Since the yen first broke through 160 on April 30, Japanese authorities have poured in a record amount of about 11.7 trillion yen (111.89 trillion won) to defend the currency. The intervention worked at first, as the exchange rate fell to the 155-yen level. However, the rate, which has risen rapidly this month, shows no sign of easing.
Japan's economic performance is flashing a "green light." Japan's first-quarter gross domestic product (GDP) growth rose 0.5% from the previous quarter, beating the market forecast of 0.3%. The trade balance, which posted a 700 million yen (6.7 billion won) deficit in April last year, turned to a surplus of 395.7 billion yen (about 3.8 trillion won). The traditional view holds that high national income and imports draw global investment funds, leading to currency strength.
However, analysts say the market actually reflects U.S. interest rate trends when valuing the yen, Japan's currency. Earlier, the U.S. Bureau of Labor Statistics reported that nonfarm payrolls rose by 172,000 in May from the previous month, double the market forecast of 80,000.
The problem is that such robust employment could prompt the U.S. Federal Reserve to raise rates. Money flows to where interest rates are higher. The Nihon Keizai Shimbun reported that day that the Bank of Japan plans to raise its policy rate from the current 0.75% to 1.0% on the 15th-16th, but even if the rate hike is carried out, it would remain far below the U.S. rate of 3.50-3.75%. On top of this, if U.S. rates rise, the rate gap between the two countries could widen and increase volatility.
Yet it is also difficult for the Japanese government to repeat rate hikes at will. Prime Minister Sanae Takaichi is emphasizing economic growth through "aggressive fiscal policy."
Meanwhile, Japanese Finance Minister Satsuki Katayama stressed at a press conference that day that the government is closely monitoring foreign exchange market trends and that its existing stance remains unchanged—that it is ready to take "decisive action when necessary" to maintain market stability.
The financial analysis platform The Kobeissi Letter reported that institutional investors are aggressively net-selling the yen. The net short position in the yen held by leveraged funds and asset managers reached $11 billion, the highest since July 2024. The Kobeissi Letter analyzed that "yen selling has increased for three consecutive weeks" and "an additional $5 billion in selling has flowed in over just the past three weeks." This means the yen is highly likely to fall further in the future.
The yield on 10-year Japanese government bonds rose 0.059% from the previous session to 2.718% on the 8th, but turned downward after the Nikkei reported that authorities are considering halting tapering (the reduction of bond purchases).
