Japanese Yen Hits Multi-Decade Lows Against Dollar Amid Inflation Concerns

The Japanese yen has hit multi-decade lows against the US dollar, with the exchange rate reaching its highest level since June 1990. This sudden drop has sparked concerns about inflation and potential intervention from Japan to prop up its currency.

According to recent data, the euro has also reached a new 16-year peak of 168.85 yen, while the dollar index was up 0.3% at 105.93 in afternoon trading. A Fed easing is priced more than 80% in December, with rate futures pricing in a 58% chance of a Fed cut at the September meeting.

Inflation remains a major concern, with the personal consumption expenditures (PCE) price index rising 0.3% in March, compared to forecasts of a 0.2% increase. The PCE inflation measure is one of the key indicators tracked by the Federal Reserve for its 2% target.

The Bank of Japan kept interest rates steady at its end-of-meeting policy statement, but flagged future rate hikes. Market participants are on high alert for possible intervention from Japan to prop up its currency, given the yen's multi-decade lows.

The dollar's surge against the yen has been driven in part by U.S. inflation data showing no signs of easing. The monthly rise of 0.32% prompted a small market sigh of relief, but noted that the figure would have matched the fastest monthly rise in the decade prior to the pandemic.

Douglas Porter, chief economist at BMO, wrote that short-term trends on the Fed's favored inflation gauge have steadily headed due north since the start of 2024. Monthly inflation readings of 0.2% over time are necessary to bring inflation back to target.

The greenback was on track for a 2% weekly gain against the Japanese currency, its largest since mid-January. The dollar briefly dropped as low as 154.97 earlier in the session, triggering speculation that the BOJ may have checked currency rates, supposedly a sign of imminent intervention.

In conclusion, the Japanese yen's decline against the US dollar has sparked concerns about inflation and potential intervention from Japan to prop up its currency. The market is closely watching for signs of easing inflation, as the Fed prepares to make decisions on interest rate cuts later this year.

Japanese yen to dollar