The Japanese yen slid to a nine-month low against the US dollar, breaching a closely watched threshold of 155 amid domestic policy uncertainties, fading expectations of a Federal Reserve rate cut in December, and amplified China-Japan tensions over Taiwan.
The yen’s exchange rate briefly weakened beyond 155.3 to the dollar on Tuesday before improving slightly, while broader markets also came under pressure. Stocks slumped, bonds were sold off, and long-term yields jumped to multi-decade highs, reflecting mounting anxiety over the government’s looming stimulus package and intensifying pressure on policymakers to steady the market.
Japanese Prime Minister Sanae Takaichi met with Bank of Japan Governor Kazuo Ueda on Tuesday afternoon. Ueda noted that the central bank was closely watching exchange-rate fluctuations and their impact on the economy, and was adjusting the degree of monetary support to achieve its 2 per cent inflation target stably.
“Earlier in the year, investors had built large long-yen positions in hopes of US-Japan rate convergence; the opposite has happened, triggering rapid position unwinds,” said Zhuang Bo, global macro strategist at Loomis Sayles Investment Asia, an affiliate of Natixis Investment Managers.
The Bank of Japan has been cautious on rate hikes, while US Treasury yields have stayed much higher, sustaining capital flows into dollar assets. Meanwhile, the diminishing likelihood of a US rate cut next month also weighs on the yen.
The Takaichi administration’s expected shift towards expansionary fiscal policy is also deepening investor unease, said Xu Weijun, an assistant research professor with the Institute of Public Policy at the South China University of Technology.
