(New York = Yonhap Infomax) Correspondent Jeong Seon-young = The dollar-yen exchange rate rose to the 155 yen range for the first time in 34 years, breaking a new high.
dollar-yen exchange rate graph
Yonhap Infomax
There is tension in the foreign exchange market as the dollar-yen 155 yen range is recognized as the level of actual intervention by the Japanese foreign exchange authorities.
According to the Yonhap Infomax current price by currency (screen number 6416) as of 12:59 p.m. on the 24th (US Eastern time), the dollar-yen exchange rate has risen again to the 155.10 yen level.
The dollar-yen exchange rate reached a high of 155.17 yen this morning, then fell, but rose again to the 155 yen range.
This rise in the dollar-yen exchange rate is largely due to the strengthening of the dollar due to the recent strong U.S. economy, the decline in expectations of an interest rate cut by the Federal Reserve, and the easing of geopolitical risks in the Middle East.
◇Resurgence of US dollar strength
The biggest reason for the recent rise in the dollar-yen exchange rate is that the U.S. dollar continues its solid trend.
The U.S. dollar index, which reflects the value of the dollar against major currencies, fell to the 100s at the end of last year but recently rose again to the 105-106 range.
The dollar continued to strengthen as expectations of an interest rate cut by the U.S. Federal Reserve (Fed) receded.
Until early this year, the dollar-yen exchange rate was interpreted as an interest rate increase by the Bank of Japan (BOJ) and an interest rate cut by the Federal Reserve. Accordingly, as the interest rate gap between the two countries narrowed, expectations were high for a major trend of a stronger yen and a weaker dollar.
However, the situation changed as the U.S. economy performed better than expected and the Federal Reserve changed its mind.
The U.S. Federal Reserve postponed expectations of an interest rate cut originally expected in June.
This is because the economy continues to be so robust that conditions for an interest rate cut have not been created.
Federal Reserve Chairman Jerome Powell said on the 16th that it would likely take longer to have greater confidence that inflation would fall to 2%.
“Recent economic indicators certainly do not provide greater confidence,” he said. “Rather, it seems like it will take longer than expected to reach that confidence.”
In contrast, the Bank of Japan (BOJ) appears to be refraining from aggressive interest rate hikes after moving away from negative interest rates. Accordingly, the trend of dollar buying and yen selling continued.
◇Solid US indicators, supporting dollar strength
US economic indicators also supported the dollar, reflecting solid economic conditions.
On the 10th, the US consumer price index (CPI) for March came out solid, and the dollar-yen exchange rate exceeded the 152 yen level.
On this day, the strength of the dollar showed the upper hand as US durable goods orders increased as expected.
The U.S. Department of Commerce announced that orders for durable goods in March of this year amounted to $283.4 billion, up 2.6% from the previous month on a seasonally adjusted basis.
This is a significant improvement from the previous month’s growth rate (0.7%↑).
Investors are scheduled to check the preliminary US gross domestic product (GDP) for the first quarter of this year on the 25th and the March personal consumption expenditure (PCE) price index on the 26th.
Solid U.S. economic indicators are a factor delaying expectations of a Federal Reserve interest rate cut.
Even if economic indicators, including the U.S. manufacturing industry, slowed slightly, expectations for an interest rate cut in June were not greatly revived.
According to CME Group’s FedWatch tool, the probability of a freeze in June was 79.9%, the probability of a 25bp interest rate cut was 18.8%, and the probability of a 25bp interest rate increase was reflected at about 1.3%.
◇Yen buying power weakened by geopolitical risk easing
The factor that limited the dollar-yen rise was geopolitical risk.
Typically, the yen is classified as a safe asset currency.
Recently, when military conflict between Iran and Israel escalated in the Middle East, some dollar selling and yen buying appeared.
However, as the Middle East risks eased, the dollar-yen exchange rate exceeded the 155 yen level, with no obstacles other than the foreign exchange authorities.
With Iran stating that it will not attack Israel again, the risk of war has been greatly alleviated.
Accordingly, the dollar-yen exchange rate entered the 155 yen range, then took a step back, but then settled back in the 155 yen range.
◇The only factor preventing the dollar-yen from rising to the top is ‘Japanese foreign exchange authorities’ actual intervention’
The variable that can significantly hinder the upward trend in the current dollar-yen exchange rate in the 155 yen range can be said to be the actual intervention of the Japanese foreign exchange authorities.
Unless the U.S. economy slows, expectations of a Federal Reserve interest rate cut are revived, or large-scale yen purchases flow in, there are no immediate factors that can change the structure of a strong dollar and a weak yen.
The Japanese foreign exchange authorities are making verbal interventionist statements every day.
In addition, it is noteworthy that the finance ministers of Korea, the United States and Japan recently hinted at the possibility of intervention in a joint declaration, expressing concern about the weakness of the won and yen against the dollar.
However, in a situation where fundamental factors are not followed, doubts may arise as to whether the effect will be sustainable if joint intervention is initiated from the beginning of the foreign exchange market intervention.
In the case of the Japanese Ministry of Finance, it is famous for the intensity of its intervention once it intervenes.
Therefore, if intervention by the Japanese foreign exchange authorities pours in in a situation where intervention alertness is heightened, the dollar-yen decline could be significant.
The problem is that even in the case of actual intervention, there must be economic variables that can cause the dollar-yen exchange rate to fall.
Another variable in Japan is the upcoming financial policy decision meeting on the 25th and 26th.
Attention is also focused on whether real intervention will be combined with tight monetary policy.
Kazuo Ueda, Governor of the Bank of Japan (BOJ), announced the previous day that interest rates would be raised if the price rise accelerates.
(end)
This article was published on the Infomax financial information terminal at 03:13, 2 hours earlier.
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