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Yen Nears 1990s Low, AUD/NZD Gain Amid BOJ Stance

Yen Nears 1990s Lows Amid BOJ Dovish Stance, Global Currencies Strengthen; Market Eyes Fed, MOF Interventions

By Athena Xu

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4/28, 22:23 EDT
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Key Takeaway

  • Yen nears 1990s lows amid BOJ dovishness and lack of MOF intervention, contrasting with gains in AUD and NZD.
  • Hawkish Fed expectations pressure Asian currencies, with USD/JPY surpassing 158 amid speculation of MOF intervention.
  • Market eyes on China, Hong Kong PMI data for economic indicators amidst yen's liquidity concerns due to Japan holiday.

Yen Weakness Amid Global Currency Shifts

The Japanese yen experienced a significant decline, nearing its lowest levels since the 1990s, in stark contrast to the gains seen in other major developed-market currencies against the US dollar. This pronounced weakness in the yen is attributed to a dovish stance from the Bank of Japan (BOJ) coupled with an absence of intervention signals from the Ministry of Finance (MOF). The Australian dollar (AUD) and New Zealand dollar (NZD) led gains among G-10 currencies, excluding the yen, buoyed by a risk-on sentiment in the market. This sentiment was influenced by expectations that the situation in the Middle East would not deteriorate further, alongside declining oil and gold prices. The yen's downturn is so pronounced that it is expected to decline in nearly all market conditions, with only unpredictable fluctuations offering temporary reprieves.

Hawkish Fed Expectations Pressure Asian Currencies

The anticipation of a hawkish stance from the Federal Open Market Committee (FOMC) is set to continue exerting pressure on Asian currencies. This outlook is reinforced by recent PCE data highlighting persistent inflation in the US, leading traders to adjust their expectations for rate cuts to the fourth quarter. Fed Chair Powell is anticipated to affirm this hawkish outlook, potentially intensifying the pressure on yields. As a result, regional currencies and bonds are facing challenges, with carry trades becoming less attractive and the possibility of delayed rate cuts or even hikes looming. The USD/JPY pair, in particular, has garnered attention, surpassing the 158 mark, as market participants speculate on potential intervention by the Ministry of Finance following the BOJ's dovish position.

Market Dynamics and Intervention Speculation

The yen's liquidity is expected to be lower than usual due to a holiday in Japan, which could amplify price movements in the currency. This comes as the USD/JPY pair briefly surged past the 160 level, prompting speculation about a possible "fat finger" incident or an erroneous trade. The focus remains on the Ministry of Finance for any signs of intervention to stabilize the yen. Meanwhile, the broader market is also watching for economic indicators from China and Hong Kong, with upcoming Purchasing Managers' Index (PMI) releases poised to influence sentiment and potentially validate signs of economic improvement.