Macro

Yen Strengthens 2% to 158.40 Against Dollar After US Inflation Report

Yen strengthens 2% against dollar after US inflation report, recovering from 161.95 to 158.40 per dollar.

By Athena Xu

7/11, 09:14 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
U.S. DOLLAR / JAPANESE YEN
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Key Takeaway

  • The yen strengthened 2% against the dollar following a softer-than-expected US inflation report, rallying to 158.40 per dollar.
  • Despite recent gains, the yen remains the worst-performing Group-of-10 currency over the past year.
  • Japan's Ministry of Finance intervened with ¥9.8 trillion in April and May to stabilize the yen amid rapid currency moves.

Yen's Surge Against Dollar

The Japanese yen has extended its advance against the US dollar, appreciating by 2% following a softer-than-expected US inflation report. The yen rallied to 158.40 per dollar, a significant recovery from its weakest point of 161.95 on July 3, the lowest level since 1986. This move is particularly notable given the yen's status as the worst-performing currency among the Group-of-10 over the past year. The Bloomberg Dollar Spot Index fell by 0.7%, highlighting the yen's outperformance among major currencies.

Factors Behind Yen's Rally

Several factors have contributed to the yen's recent strength. The softer US inflation data has reduced expectations for aggressive Federal Reserve rate hikes, leading to a weaker dollar. Additionally, the Bank of Japan's (BOJ) monetary policy adjustments have played a role. In March, the BOJ raised its short-term policy rate for the first time since 2007, a move that initially failed to bolster the yen due to prevailing bearish sentiment. However, the recent intervention by Japan's Ministry of Finance, which involved purchasing ¥9.8 trillion to stem the yen's losses, appears to have had a more lasting impact.

Finance Minister Shunichi Suzuki expressed deep concern about the rapid and one-sided currency moves, emphasizing the potential negative effects on the Japanese economy. "We are deeply concerned about the impact of rapid and one-sided currency moves on the economy," Suzuki stated, underscoring the government's commitment to stabilizing the yen.

Market Reactions and Predictions

Market analysts have been closely monitoring the yen's movements, particularly in light of the US Consumer Price Index (CPI) data. Eddie van der Walt from Bloomberg noted the outsized move in the USD/JPY pair, which fell by 2.2%, compared to the 0.7% decline in the Bloomberg Dollar Spot Index. Cameron Crise, also from Bloomberg, had earlier identified the USD/JPY as the asset most at risk of a reaction to a benign or low inflation print, a prediction that has proven accurate.

The yen's rally has outperformed its G-10 peers, with the dollar cross testing the 158 handle and last seen at 158.88. This performance has led to increased speculation about the yen's future trajectory, with some traders predicting further gains if the US inflation trend continues to soften.

Management Quotes

  • Shunichi Suzuki, Finance Minister of Japan:

    "He’s deeply concerned about the impact of rapid and one-sided currency moves on the economy."