Despite the Bank of Japan maintaining the key rates and parameters of its quantitative easing programme unchanged, the central bank's inaction has intensified pressure on the yen. This led the dollar to reach 156.80 against the yen, and the euro to levels last seen in 2007-2008, levels which began to sharply decline due to the global financial crisis and related deleveraging.
FxPro senior analyst Alex Kuptsikevich noted: The dollar against the yen has surpassed the levels seen during the intervention in October 2022, and about a year later when a market reversal occurred. This brings up the question of "when," although the question of "whether they will or not" remains relevant.
Central banks and governments do not focus on the nominal levels of individual currency pairs. They are concerned with dynamics, as sudden changes can lead to inflation and economic shocks. Thus, observing the dynamic changes of a basket of currencies is more useful.
The yen's nominal effective exchange rate has dropped to its lowest level since the 1990s. In 1997, amidst the backdrop of the emerging market crisis, the yen turned to growth, around the same level. The stress of the 2007 global financial crisis led to a 5% increase in the yen. Therefore, the current exchange rate levels are not exceptional; over the past 34 years, the yen exchange rate has fluctuated near this level multiple times.
The yen's weakening may pose a risk of leading to inflation. It is noted that the government and central bank intervened in the market when the year-on-year change was close to 20%. The dollar grew by 17% against the yen on a year-to-year basis, and the euro by 13% against the yen. While significant, it allows authorities to remain less impassioned than financial media and traders.
In terms of historical standards, discussing the yen's depreciation as a monetary shock to the economy is not permitted.
As a recent turning point, we could consider the 160 mark for the dollar against the yen—April 1990's market reversal point. Similarly, around 170 for the euro against the yen. At these levels, intervention is uncertain. If the yen crashes rather than appreciating slowly, the likelihood of intervening in forex free pricing obviously increases.
