SINGAPORE- The yen languished near a four-month low against the US dollar and a 16-year trough against the euro on Wednesday as traders wagered Japan’s monetary settings will remain accommodative even as the central bank ends its negative interest rate policy.
While the Bank of Japan on Tuesday ushered in the country’s first rate hike in 17 years, the central bank said it expected to maintain accommodative conditions for the time being, keeping pressure on the yen as US Japanese rate differentials remain stark.
On Wednesday, the yen weakened to a four-month low of 151.58 per dollar and was last off 0.47 percent at 151.56, with the multi-decade low of 151.94 within sight and the threat of intervention by Japanese authorities resurfacing.
“I think the focus is again around 152 levels,” said Christopher Wong, currency strategist at OCBC, adding that there was a fair chance of seeing some smoothing if dollar/yen continues to go higher towards 152.
Wong said the move for dollar/yen in the near term will be more a function of US rates with the Federal Reserve decision due later on Wednesday.
The yen’s drop was broad based, with the currency weakening to 164.66 against the euro its lowest since 2008, while against the pound, yen slipped to 192.75, its lowest since 2015. Japan markets are closed on Wednesday for a holiday.
In a historic shift from decades of massive monetary stimulus, the Japanese central bank on Tuesday ended eight years of negative interest rates and other remnants of unorthodox economic policy.
The yen fell 1 percent against the dollar on Tuesday after the BOJ decision as most investors had already priced in a change, with analysts suggesting that the “dovish hike” cemented the view that the yen carry trade was far from over.
Low Japanese rates have made the yen the funding currency of choice for carry trades, in which traders typically borrow a low-yielding currency to then sell and invest the proceeds in assets denominated in a higher-yielding one.
