Yen falls to 24-year high as policy gap slide continues

The yen fell to a 24-year low Monday as Japan’s easy monetary policy increasingly stood at odds with developed peers raising rates. The currency fell more than 0.5 per cent to ¥135.19 to the dollar, the lowest since October 1998, as Treasury yields extended Friday’s inflation-shock driven gains.

The yen has tumbled about 15 per cent this year — the worst-performing major currency — as the Bank of Japan keeps rates anchored to boost a sluggish economy while US yields surge on bets for continued Federal Reserve rate increases. Friday’s shock US inflation print, which was higher than expected, has heaped pressure on the Fed to intensify monetary tightening, boosting the dollar. Before it hit, senior Japanese officials delivered a ramped-up warning on the yen’s decline, putting their concern in a written statement for the first time as they seek to keep a floor under the currency.

The weakening yen is expected to have a mixed impact on the domestic economy, hurting household budgets but providing a boost to exports.

A further slide would increase pressure on neighbouring Asian economies, which are losing out in export competitiveness. “Markets appear to be pricing in further aggressive rate hikes, with some seeing the Fed raising 75 basis points in June as it may be more concerned about inflation, with longer-term expectations staying elevated,” said Shinsuke Kajita, chief strategist at Resona Holdings in Tokyo.

The yen has also been pushed down compared with other developed peers. It slid to a seven-year low against the euro and the Australian dollar earlier this month after the Reserve Bank of Australia’s bigger-than-forecast rate increase and plans unveiled by the European Central Bank to begin monetary tightening.