The Japanese Yen is near a 40-year low

In the trading session on June 19, the USD increased in price, pushing the yen close to its lowest level in nearly four decades, around 161,455 yen per USD.

The yen has almost no significant support, even though the Japanese Ministry of Finance sold USD to intervene in the market earlier this year and the Bank of Japan (BOJ) just raised interest rates to a 30-year high on June 16.

Meanwhile, concerns about Japanese Prime Minister Sanae Takaichi’s spending plans are reducing investor confidence, raising speculation about new rounds of intervention. “Speculative short positions in the yen have not decreased, even though the BOJ just raised interest rates this week,” said DBS analysts.

Analysts say that the level of acceptance of the weakening of the yen seems to be near the limit. According to DBS, Japanese policymakers will likely signal toughness and continue to intervene to restrain price decline.

Mr. Tony Sycamore, market expert of IG in Sydney, said that the Japanese Ministry of Finance will likely defend the mark of 161.95 yen per USD, with a similar scale of intervention in April and May, which means buying about 11,700 billion yen.

According to him, this level of intervention is equivalent to about 11-12% of Japan’s total short-term foreign exchange reserves, but has a fairly limited impact. At that time, Tokyo will have to be more cautious in subsequent interventions to maintain policy flexibility and credibility, while retaining enough reserve resources.

Last week, the Dollar Index, which measures the strength of the greenback against a basket of six major currencies, increased 1.1%, sometimes reaching 101.07 points, the highest level in a year, and is currently above the 100 threshold. The USD continues to strengthen as the market adjusts expectations about the monetary policy of the US Federal Reserve (Fed).

On June 17, the Fed announced to keep the basic interest rate unchanged at 3.5-3.75%. Many investors believe that the Fed may act sooner than expected to control inflation, even as soon as next month. According to CME Group’s FedWatch tool, the market predicts the probability of the Fed raising interest rates by 0.25 percentage points at the July meeting is 39.6%, up sharply from just 8% a week ago.