Yen price continues to fall against USD

In just a few days, the yen continuously broke important exchange rate milestones of 160 and 161 JPY per USD, reaching its lowest level since 1986.

On the morning of June 28, each USD was exchanged for 161.2 yen. This is the first time the exchange rate has exceeded 161 JPY for one USD since 1986.

It was also the second time in as many days that the yen hit a 38-year low against the dollar. The currency has lost 6% in the second quarter and 12% against the dollar this year, the steepest decline among the world’s 10 most traded currencies.

Compared to the euro, the yen even hit an all-time low, with one EUR currently worth 172.3 JPY.

USD/JPY exchange rate developments over the past year. Chart: Reuters

Low interest rates in Japan make the yen less attractive compared to many other currencies. Recently, yen has become an ideal target for carry trade activities (currency interest rate difference trading). This is the transaction of borrowing in a currency with a low interest rate, then selling it to buy a currency with a higher interest rate. This money can then be saved, or invested.

In late April and early May, Japan spent 9,790 billion yen (60.94 billion USD) to support the domestic currency when the exchange rate hit a 34-year low, at 160.2 JPY per USD.

Although Japanese officials have raised interest rates and repeatedly warned that they will intervene again in the market, the yen's decline has not stopped. "The need for carry trade is still there, when the possibility of interest rate fluctuations is currently very low," said Ray Attrill - Director of foreign exchange strategy at National Australia Bank.

Core inflation in Tokyo accelerated in June, rising 2.1% year-on-year, data showed today. Tokyo figures are seen as an indicator of the country as a whole, raising expectations that Japanese authorities will raise interest rates in the second half of the year.

The USD strengthened this morning in the context of US Presidential candidates Joe Biden and Donald Trump having their first televised debate. A strong USD is forecast to be one of the topics of this debate. The US dollar is heading for its second consecutive quarter of gains against major currencies.