Yen heads for worst year on record as it sinks deeper against the dollar

The yen has slumped to a level that leaves it on track for its worst year on record, prompting the strongest warnings so far from senior Japanese government officials as they seek to stem the slide.

The currency fell as much 1 per cent to 144.19 per dollar on Wednesday in a third day of declines as a new wave of dollar strength ripped through Asia, putting pressure on a range of foreign exchange levels.

In his strongest remarks yet, chief Cabinet secretary Hirokazu Matsuno said he was concerned about the recent rapid, one-sided moves and that Japan would need to take action if they carried on.

“The government will continue to watch forex market moves with a high sense of urgency and take necessary responses if this sort of move continues,” he said.

Finance minister Shunichi Suzuki said he was watching the yen’s weakness with great interest, Kyodo News reported separately.

Despite the salvo of warnings, the comments proved insufficient to contain the yen’s continued slide.

The currency has slumped 20 per cent this year, and edged past its previous worst annual drawdown in 1979.

The renewed sell-off in Treasuries this month has widened the yield gap between the US and Japan, driving up the dollar and pushing the yen to a 24-year low.

The Japanese currency wasn’t the only one in the firing line on Wednesday, with the greenback stronger against all Group-of-10 peer currencies, as well as Asian counterparts from the yuan to the won.

The Bloomberg Dollar Spot Index extended a record high for the gauge.

The dollar-yen’s surge past the 144 level for the first time since 1998 will mount pressure on Bank of Japan Governor Haruhiko Kuroda’s defiance of a global shift towards rate increases, and the strength of Prime Minister Fumio Kishida’s support for his stance.

“The MoF [Ministry of Finance] and the BoJ [Bank of Japan] probably believe the current phase is clearly the dollar’s strength, and not the yen’s issue,” said Mari Iwashita, chief market economist at Daiwa Securities.

“That means there, unfortunately, is no sense of urgency about intervention or the need for the BoJ to tweak policy.”

In June, Japanese officials said they would take action if necessary, without specifying what that would be, after a three-party meeting held between the Ministry of Finance, the central bank and the Financial Services Agency.

Japan last intervened to prop up the currency in 1998, at around the same time much of Asia was being buffeted by a regional financial crisis.

Mr Kuroda has repeatedly said that foreign exchange policy is the remit of the finance ministry, not the BoJ, while standing his ground on keeping rock-bottom interest rates to support the economy and generate a more stable form of inflation.

He has insisted that a policy tweak to turn the currency tide would be largely futile anyway.

“I think Kuroda is right in that a small rate hike by the BoJ won’t stop the trend,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.

Beyond offering more help against rising prices driven by the yen, the options are also limited for the government, she said.

“Japan can only intervene unilaterally in foreign exchange, which won’t reverse the trend beyond a one-off shock.”

In the bond market on Wednesday, the BoJ said it would boost scheduled debt purchases as the intensifying Treasuries sell-off also put upward pressure on yields.

The move came as Japan’s benchmark 10-year yield approached the 0.25 per cent upper limit of the BoJ’s tolerated trading band.

In the options market, bets on further yen weakness are growing. One-year risk-reversals for the dollar-yen — a gauge of expected direction for the currency pair over that time frame — have hit the highest since 2015, according to data compiled by Bloomberg.

“So long as US bond yields are rising, which they are right now, and if the BoJ is trying to maintain this 25 basis points target on the 10-year JGB, the yen’s going to keep going down,” Chris Wood, global head of equity strategy at Jefferies, said on Bloomberg TV.

“The fundamental cause of the collapse of the yen this year is the stubborn commitment by the BoJ governor to this yield-curve control policy,” he said.