Japanese yen hits 40-year low

Japanese currency now weakest against USD since 1986, raising fears government will intervene soon to support.

Morning June 30, one USD bought 162.27 Japanese yen. Weakest level for yen since 1986.

In Q2, yen lost nearly 2% against US dollar. Fourth consecutive quarter currency weakened. In 2022, yen recorded 7 straight quarters of decline as interest rate gap with US widened.

USD/JPY exchange rate trend over past year. Chart: Reuters

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Yen recently weakened due to high oil prices, forcing country to need more USD for fuel imports. Another reason is interest rate gap between US and Japan. US rate now 3.5-3.75%, while Japan rate 1%.

Weak currency will push inflation and living costs high in Japan. Officials confirm economic drag unavoidable.

"Question now not if, but when Japan Ministry of Finance will intervene to support currency," said Carol Kong, currency strategist at Commonwealth Bank of Australia.

However, she believes this cannot reverse yen depreciation trend. "We forecast rate to rise to 164 JPY per USD early next year," she said.

Overall, yen value changed little after Tokyo's recent interventions of about 11.7 trillion yen (72.25 billion USD), and Bank of Japan rate hikes in past few months. Middle East conflict sparks inflation fears and disrupts global rate outlook.

Intervention believed to start April 30, when yen weakened against US dollar to nearly 160 JPY per USD, lowest in nearly 2 years. Since then, yen rebounded multiple times, sparking speculation of further official action. Still, yen remains under pressure as investors bet US Federal Reserve (Fed) will raise rates this year.

This week, US will release June jobs report. New jobs grew faster than forecast for three straight months, backing Fed's tight stance. Investors bet 63% chance Fed raises rates before September.

Dollar Index—measuring greenback against 6 major currencies—now at 101.6. Index on track for strongest monthly gain in nearly year.