The Japanese yen weakened to 162.41 per dollar in Tokyo trading on Tuesday, its lowest level since December 1986, according to UPI. The decline renewed speculation that Japan’s government and central bank may intervene in the foreign exchange market to support the currency.
Finance Minister Satsuki Katayama, who is responsible for Japan’s currency policy, declined to comment on a specific exchange-rate level during a news conference following a Cabinet meeting. She reiterated that authorities were prepared to respond appropriately to excessive volatility, a standard formulation that Japanese officials use to signal intervention readiness without identifying a fixed trigger level.
The yen has been under sustained pressure from the large interest-rate gap between the United States and Japan. Expectations that persistent U.S. inflation could lead the Federal Reserve to raise rates again have strengthened the dollar, encouraging investors to borrow or sell lower-yielding yen and purchase dollar-denominated assets.
The Bank of Japan raised its short-term policy rate from 0.75% to about 1% on June 16, its highest level in 31 years. However, investors remain uncertain about the pace of further rate increases, leaving the interest-rate differential wide enough to sustain so-called carry trades, in which investors obtain funds in a low-interest currency and invest in higher-yielding assets.
Uncertainty surrounding efforts to end fighting between the United States and Iran has also supported demand for the dollar, as investors frequently move funds into the U.S. currency during periods of geopolitical instability. Tuesday was also one of Japan’s traditional settlement dates ending in five or zero, when Japanese companies often purchase foreign currencies to make overseas payments, adding to the downward pressure on the yen.
The yen’s weakness increases the cost of imported energy, food, and raw materials for Japan, raising consumer prices even as a weak currency improves the overseas earnings of Japanese exporters.
The South Korean won continued to trade in the 1,540-per-dollar range, close to levels last seen during the 2008-09 global financial crisis. It closed at 1,542.7 per dollar on Thursday, according to UPI. Finance Minister Koo Yun-cheol said last week that the won’s level in the mid-1,500 range was excessive compared with the country’s economic fundamentals, attributing part of the weakness to foreign investors selling local stocks for portfolio rebalancing.
The won faces dual pressure from a strong dollar and foreign selling of South Korean equities following a stock market rally. A weaker won raises the domestic cost of oil, natural gas, food, and other imports priced in dollars, and increases the financial burden on businesses with dollar-denominated debt.
The sharper decline in the yen creates an additional problem for South Korea. A weaker yen can make Japanese automobiles, machinery, and electronic components more price-competitive in international markets, putting pressure on South Korean exporters even as the won itself loses value against the dollar. South Korean authorities must monitor not only the won’s movement against the dollar but also its relative value against the yen.
Japan’s potential response to the yen’s decline could also affect the won. Successful intervention that slows the yen’s decline could reduce anxiety across Asian currency markets and provide indirect support for the won. An intervention that fails to reverse the trend could instead reinforce expectations of continued dollar strength and place further downward pressure on other regional currencies.