Japanese Yen Exchange Rate Hits a 39-and-a-Half-Year Low: The Dollar vs. the Yen Could Rise to 162—What Is the Cost of Early Intervention by Sana Takachi?

June 22, the US dollar against the Japanese yen briefly reached 161.93 in the New York foreign exchange market, approaching the 39-year low since December 1986. Japan has spent over 73 billion US dollars this month intervening in the currency market, but the US-Japan interest rate differential still supports a strong dollar.
(Background: Yen rebound hopeless? Sanae Takaichi persuades Kazuo Ueda "not to raise interest rates," BOJ may hold steady in March)
(Additional context: Weak yen triggers inflation red line: Bank of Japan may be forced to raise rates early)

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• Japan intervention: one month of record numbers
• Impact on Taiwanese investors
• What to watch next

On June 22, a wave of yen selling occurred in the New York forex market, with the dollar/yen rate soaring to 161.93, just a hair away from the 39-year low since December 1986. Taipei Fubon Bank pointed out that the market currently expects the Bank of Japan to possibly raise interest rates again by the end of the year. However, the high level of the US-Japan interest rate differential continues to keep speculative funds biased against the yen, and the dollar/yen exchange rate steadily climbed after the Tokyo session opened, reaching a high of 161.93 during trading.

What does this data represent? 1986 was the starting point of the yen's significant appreciation under the "new exchange rate mechanism." Now, after 39 and a half years, the yen has returned close to its starting exchange rate, implying that Japan's export advantage has been replaced by inflation pressures and soaring import costs.

Japan intervention: one month of record numbers

Although Japanese Prime Minister Sanae Takaichi has already indicated support for raising interest rates, market expectations for the yen gradually bottoming out remain, but the yen market still shows signs of weakness. The Ministry of Finance's foreign exchange reserves data released on June 22 shows that by the end of May, Japan's holdings of foreign securities decreased by 75.6 billion US dollars from April, setting a record decline.

Japanese Finance Minister Shunichi Suzuki confirmed that the funds used for currency market intervention in that month reached a record 11.73 trillion yen (about 73.4 billion US dollars). Mitsubishi UFJ Morgan Stanley strategist Daisuke Ueno pointed out that as long as the positive or negative real policy interest rate differential between the US and Japan persists, the "magic" of intervention will be difficult to sustain in suppressing yen selling pressure.

Impact on Taiwanese investors

The most direct effects of yen depreciation are:

• Japanese exports become more competitive (electronics components, auto parts, consumer goods)
• Investors holding yen deposits or yen-denominated ETFs face exchange losses
• Actual costs for travel and shopping in Japan decrease (but Japanese inflation partially offsets this advantage)

If the Bank of Japan accelerates rate hikes, capital may flow back to Japan from Asian markets, driving volatility in TSMC's supply chain and Asian stock markets.

What to watch next

Shunichi Suzuki held an online meeting with U.S. Treasury Secretary Janet Yellen on Monday evening, and the two may have discussed exchange rate issues. Market focus shifts to the Bank of Japan's July interest rate decision and whether Japan will intervene again.