As the yen exchange rate once again fell below the 150 mark overnight, the "red alert" surrounding the significant depreciation of this major global financing currency is undoubtedly sounding again.
Market data shows that the latest morning trading of the US dollar against the Japanese yen on Thursday (October 26) was around 150.26 in the Asian session, after the currency pair briefly rose to 150.31 overnight, the highest level in nearly a year.
Although it did not exceed the intraday high of 151.96 set in October last year, the USD/JPY exchange rate was trading at 150.23 at the end of Wednesday's New York trading session, and the last time the USD/JPY was at a similar high at the end of the day's trading, it can be traced back to August 1990.
While the geopolitical situation caused by the Palestine Israel conflict continues to be tense, the yen, which has the nature of risk aversion, is still weakening. This abnormal performance is undoubtedly attributable to the widening interest rate gap between the US and Japan's treasury bond bonds.
The yield of 10-year US treasury bond bonds soared again to 4.96% on Wednesday due to the weak demand shown by the auction of five-year treasury bond overnight and the acceleration of US housing sales in September according to data.
In contrast, the yield of Japanese 10-year treasury bond is still only 0.85% under the suppression of the Bank of Japan's planned purchase of bonds several times in recent weeks. This price difference has put pressure on the yen and sparked speculation that the Bank of Japan may still adjust its monetary policy.
A set of statistics shows that the Japanese yen has depreciated by over 12% against the US dollar since the beginning of this year, making it the worst performing currency among G10 currencies.
What will the Japanese authorities do?
As the yen once again falls below the 150 mark, the current actions of the Japanese authorities are clearly receiving increasing attention from market participants.
Investors previously believed that the first line of 150 yen was a dangerous area that could trigger intervention by Japanese authorities. In addition, there is increasing speculation in the market that Bank of Japan officials are considering whether to adjust the Yield Curve Control Plan (YCC).
In September and October last year, Japan used approximately 9 trillion yen ($60 billion) in three separate interventions to support the yen, marking the first such intervention since 1998.
It is reported that Japanese Finance Minister Junichi Suzuki continued to warn investors on Thursday not to sell the yen, stating that the authorities are closely monitoring the trend of the yen against the US dollar after it falls below 150 yen.
When asked about the renewed weakness of the Japanese yen, Suzuki told reporters at the Japanese Ministry of Finance, "I am, as before, highly urgent and closely monitoring the trend of the exchange rate
As global interest rates rise, the pressure for the Bank of Japan to change its YCC policy is also increasing. Last week, the media quoted sources as saying that the Bank of Japan may consider adjusting its Yield Curve Control (YCC) plan at next week's interest rate meeting, despite differences of opinion among officials.
Fundamentally, plans like yield curve control are chaotic, and the longer this policy runs, the fewer good options there are, "said Bipan Rai, Global Foreign Exchange Strategy Director at Imperial Bank of Canada