Yen Falls to 39-Year Low, Japan Opens Up Intervention Opportunity

JAKARTA - The yen is again under pressure against the US dollar. The Japanese currency weakened to near 162 per US dollar, the lowest level in nearly 39 years, as markets expect the US interest rate to still rise.

Kyodo News, quoted Tuesday, June 30, reported that the US dollar had touched 161.98 yen in the New York market on Monday. That level has not been seen since December 1986.

At 17.00 local time, the dollar was trading in the range of 161.90 to 162.00 yen.

The weakening of the yen is not just a number on the market screen. A too weak yen makes Japanese import costs more expensive, from energy to food. For countries that are poor in natural resources, this kind of pressure is quickly felt in households.

Japan has previously entered the foreign exchange market several times to hold back the yen's fall. Intervention means the government or central bank enters the foreign exchange market to hold back the weakening of the currency.

The last intervention was carried out from the end of April to May. However, the pressure has not disappeared because the interest rate gap between Japan and the US is still wide.

The Bank of Japan earlier this month raised its interest rate to 1.00 percent from 0.75 percent. That's the highest level in 31 years. The Japanese central bank is also opening the door to further hikes due to inflationary risks from the Middle East conflict and rising import costs.

In the United States, the Federal Reserve under new chairman Kevin Warsh has also signaled another rate hike before the end of the year. The signal came despite US President Donald Trump pushing for a rate cut.

Pressure on the yen also came as Japanese Prime Minister Sanae Takaichi pushed for greater fiscal spending to support growth. One of his proposals is a temporary freeze on consumption taxes on food and beverages.

The problem is, Japan's fiscal space is not spacious. Government debt is much larger than the size of its economy. Japan's fiscal condition is the worst among developed countries.

Japanese authorities have signaled they are ready to act if the yen weakens. After speaking online with US Treasury Secretary Scott Bessent on June 22, Japanese Finance Minister Satsuki Katayama said the two countries agreed to take "firm steps if necessary".

The signal kept markets wary of possible Japanese intervention if the yen continued to weaken.