(June 26): The yen tumbled to the weakest level since 1986, raising speculation authorities may act to support the currency again.

The Japanese currency fell as much as 0.4% to 160.39 per dollar, beyond levels that last led officials to intervene in the market in April. The vast gap between interest rates in Japan and the US has kept pressure on the yen despite attempts to stem its slide.

The next big pain point may emerge from a readout on the Federal Reserve’s favoured US inflation gauge on Friday, which is key to the outlook for interest rates.

A lot is at stake for Japan, which spent a record ¥9.8 trillion (US$61.1 billion or RM288.1 billion) in its most recent bouts of intervention. The yen has lost more than 12% of its value this year alone, hurting Japanese consumers and causing growing unease among businesses.

“Rhetoric from the Ministry of Finance in recent days has signaled increased concern,” said Erik Nelson, macro strategist at Wells Fargo in London, adding that Japanese authorities may wait for the yen to slide to 165 or above to enter the market.

So far this week, officials in Tokyo have limited their response to verbal warnings.

Finance Minister Shunichi Suzuki said they are closely monitoring developments in the market and will take all possible measures as needed. The country’s top currency official, Masato Kanda, warned on Monday that authorities stand ready to intervene, 24 hours a day, if necessary, while reiterating they were not targeting a specific level.

Contained volatility

Still, US data Friday may ease some of the pressure on the yen. Economists forecast core PCE inflation — a measure that excludes the volatile food and energy categories — will decelerate, which could bolster the case for the Fed to lower borrowing costs this year.

Volatility also remains relatively low market, making it difficult for authorities to enter the market just yet, many strategists say. One-month implied volatility in dollar-yen has hovered below 9% for much of this month, down sharply from 12.4% in late April.

“Given quarter-end dollar demand and the fact that the volatility environment remains contained, Japanese authorities might wait a bit more before intervening once again,” said Roberto Cobo Garcia, head of G-10 FX strategy at Banco Bilbao Vizcaya Argentaria SA in Madrid. “Volatility needs to rise more if they are to step in again.”

Uploaded by Magessan Varatharaja