In response to the yen’s significant decline to its lowest point against the dollar in 34 years, Japan’s finance minister has indicated on Wednesday that the nation stands ready to undertake “decisive steps” to bolster the currency. This statement, reminiscent of the language used prior to Japan’s market intervention in 2022, underscores the government’s concern over the yen’s depreciation.

Following these remarks, it was announced that a crucial meeting would be convened involving the Bank of Japan, the Finance Ministry, and Japan’s Financial Services Agency. Scheduled for 6.15 Tokyo time (0915 GMT), the meeting aims to deliberate on the state of international financial markets.

In the aftermath of the announcement and the finance minister’s comments, the dollar experienced a slight decline against the yen, stabilizing at 151.49. This adjustment comes after the yen weakened to 151.97, surpassing the intervention threshold of 151.94 set by Japanese authorities in October 2022.

Finance Minister Shunichi Suzuki expressed the government’s heightened vigilance over market trends, especially after the dollar’s rise following robust U.S. economic data. Suzuki emphasized the readiness to act decisively against unwarranted market fluctuations, leaving all options on the table.

Currency analysts, including Christopher Wong from OCBC in Singapore, suggest that the market is cautiously probing Tokyo’s threshold for intervention. With the risk of intervention looming large, inaction could potentially embolden further bullish moves on the dollar against the yen in the coming days.

Despite the Bank of Japan’s recent departure from negative interest rates, the yen’s value continues to erode. Bank of Japan Governor Kazuo Ueda highlighted the significant influence of currency valuations on the nation’s economy and inflation, reaffirming the central bank’s commitment to monitoring these dynamics closely.

The yen’s depreciation has far-reaching implications, not only raising import costs and inflation domestically but also affecting the competitive landscape for exports from Japan, the world’s fourth-largest economy. Observers note that the weakening yen has also impacted other currencies, with strategic adjustments observed in China’s yuan to maintain export competitiveness.

The persistence of the yen’s decline has cemented its role in carry trades, with investors leveraging Japan’s low interest rates to fund investments in higher-yielding assets elsewhere. This phenomenon, coupled with the anticipation of delayed further rate hikes by the Bank of Japan, continues to pressure the yen, making it the quarter’s weakest major currency with a more than 7% depreciation against the dollar.

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