Yen Slide Spurs Question Whether Japan Will Talk It Up

(Bloomberg) -- A monthslong slide in the yen that’s only accelerated in March is stirring chatter that the government might act or make noises to support it, although some in Japan might actually welcome a weaker currency.

Even if Japan stops short of directly selling dollars to buy yen, there are options available to help buoy the floundering currency. A further slide could prompt verbal jawboning from the Bank of Japan, according to Brad Bechtel, a strategist at Jefferies LLC, although a lack of inflation means the drop is less problematic and could support the country’s exporters. Thierry Wizman of Macquarie Futures instead sees the central bank raising the cap it has on benchmark yields to defend the yen. 

“It’s true they need more inflation, but they also don’t need the kind of uncertainty that’s brought to the market by a lot of dollar-yen volatility,” Wizman said in an interview with Bloomberg Television. 

Japanese authorities are known for their readiness to intervene on behalf of the yen when under pressure in either direction. They last stepped into the market in 2011 after a devastating earthquake and tsunami. On Monday, Eisuke Sakakibara, the nation’s former top currency official, told Reuters he reckons they should opt for another intervention if the yen breaks through 130 per dollar. 

The yen’s plummet has brought its monthly losses to 7% against the greenback, and it took another leg lower Monday, falling as much as 2.3% to an almost seven-year low of 125.09. With the war in Ukraine helping push crude prices to their highest levels in more than a decade, the yen hasn’t found support from its usual crisis-induced haven demand because the Japanese economy is heavily dependent on energy imports. 

With U.S. Treasury yields surging back to pre-pandemic levels, another traditional headwind, there seems to be few signs of a potential reprieve for the yen. With so many key levels broken through so quickly, traders will be keeping an eye on which one might be the trigger for policy makers to step in. 

(Corrects fourth paragraph to show the government, not the BOJ, makes decisions on FX intervention in Japan)

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