Dollar Weakens While Yen Steadies Amid Intervention Fears
The U.S. dollar saw a decline on Monday following tensions about possible intervention from Japan to support their currency, the yen. This comes after the yen reached near 160 yen per dollar, which previously led to the Japanese government stepping in to stabilize it.
Background: Earlier, the yen had hit 159.94 yen to a dollar, which is its highest since late April. The Japanese Ministry of Finance had spent around 9.8 trillion yen in April to support the yen when it reached a 34-year low of 160.245 yen per dollar.
Market Jitters
Michael Brown, a senior researcher at Pepperstone, mentioned that while there wasn't a clear intervention, the market is nervous about the possibility of one. He believes that unless the yen’s decline becomes rapid or chaotic, Japanese authorities might wait before intervening.
Japan's Response
Japan’s currency diplomat, Masato Kanda, stated that Japan would act if foreign exchange movements become extreme. This is significant given Japan has been added to the U.S. Treasury’s monitoring list but this would not limit their intervention capabilities.
Bank of Japan's Decision
The Bank of Japan (BOJ) recently decided to delay reducing its bond-buying stimulus until July. This decision has put pressure on the yen, causing it to drop 1.5% in June. During a BOJ meeting, some policymakers suggested raising interest rates to avoid inflation getting out of control.
Larger Context
The yen is sensitive to U.S. Treasury yields and has fallen more than 10% against the dollar this year. The disparity between U.S. and Japanese interest rates is a key factor.
Brian Daingerfield, an FX strategist at Natwest Markets, noted that it's unclear if the Ministry of Finance has a specific level at which they would intervene or if it depends on broader market conditions.
Upcoming U.S. Inflation Data
The spotlight this week will be on Friday's release of the U.S. personal consumption expenditures (PCE) price index. This index is important because the Federal Reserve uses it to check how well they’re doing in lowering inflation to their 2% target. A sign of easing inflation could increase chances of a rate cut.
Political Events
Key events to watch this week include the first U.S. presidential debate between President Joe Biden and Donald Trump on Thursday, and the first round of France's election on Sunday. Both events could influence financial markets.
Other Currencies
- Euro: up 0.44% at $1.0738 but down about 1% in June. France's elections bring additional focus to the euro.
- British Pound (Sterling): strengthened 0.28% at $1.268.
- Australian Dollar: strengthened 0.18% versus the dollar to $0.6651.
- Yuan: trading close to its lowest in seven months at 7.2585 per dollar.
Cryptocurrencies
- Bitcoin: fell to its lowest since May 10, down 4.52% at $61,267.00.
- Ethereum: dropped 5.98% at $3310.26.
Explanation of Terms
- Intervention: When a government or central bank buys or sells currencies to influence the exchange rate. For example, if the yen weakens too much, the Japanese government might buy yen to increase its value.
- Treasury Yields: Interest rates the U.S. government pays to borrow money. Higher yields make the U.S. dollar more attractive, weakening other currencies like the yen.
Using simple terms and examples can help make complex financial news more accessible to everyone.
