(London) The yen plunged on Thursday to hit a 24-year low against the dollar, which was taking advantage of its status as a safe haven in a worried market, also jumping against the euro and the pound.
Posted at 11:21 a.m.
Updated at 11:52 a.m.
The Japanese currency, which is also suffering from the ultra-accommodative policy of the Bank of Japan (BoJ), lost 0.72% to 139.96 yen around 11:35 a.m., after falling to 140.22 yen, a lowest since 1998.
The plunge in the yen, which has fallen by more than 20% over the past year, is attributed by currency traders to Japan’s monetary policy, which remains very flexible.
Unlike the US and Europe, where inflation is soaring and has even topped 10% in the UK, inflation in Japan hit 2.4% y/y in July, fairly close to target 2% of the major central banks, encouraging the BoJ to wait and see.
But the melting of the yen could push the institution to act: “Previously, when the Bank of Japan intervened to buy yen, it was around these levels”, explained to AFP David Forrester, in charge of the exchanges of the Credit Agricole in Hong Kong.
“Inflation in Japan is accelerating and spreading to sectors other than food and energy”, two causes of price increases linked to the war in Ukraine and over which central banks have little power, notes M Forrester.
This more generalized price increase should “cause the BoJ to change its posture a bit”, he believes.
The Bank of Japan’s wait-and-see attitude contrasts with the firm line of the US Federal Reserve (Fed), which has repeatedly indicated that its rate hikes will continue to curb inflation.
Euro and pound in trouble
“Comments last week from Federal Reserve Chairman Jerome Powell, who promised quick action to control inflation regardless of the effect on the US economy” are benefiting the dollar, OFX analysts commented.
And the markets were also worried about seeing the Chinese economy weaken, which is pushing investors towards the dollar, a safe haven.
Chinese manufacturing activity collapsed in August, according to an independent index, and the country continues to follow a strict zero COVID-19 strategy despite having far fewer infections than the rest of the world.
New confinements “shower expectations on the strength of the economic rebound in the second half of the year”, judged Lee Hardman, analyst at MUFG.
The other major currencies were no better: the euro lost 1.11% to $0.9942, approaching its lowest point since the end of 2020, reached in August at $0.9901.
The British pound briefly fell below $1.15 for the first time since March 2020, and is moving dangerously close to $1.1412, a threshold below which the British currency would fall to its lowest since 1985.