The yen soared on Thursday after Japanese monetary authorities intervened in the foreign exchange market for the first time since 1998 to boost the ailing currency, although analysts said Japan may struggle to maintain strength for long.
The dollar fell to 140.31 yen after the intervention and later fell 1.5% to 141.91 yen. Earlier it hit a new 24-year high at ¥145.9, making the spread between the day’s high and low for the pair the widest since June 2016.
The euro, Australian dollar and sterling also tumbled against the Japanese currency before regaining some ground.
The confirmation of the intervention by the Japanese authorities came hours after the Central Bank of Japan (BoJ) decided to keep interest rates low to support the country’s fragile economic recovery.
Instead, central banks around the world, most notably the US Federal Reserve, are aggressively raising rates and the policy divergence has weighed on the yen. Analysts indicated that Japan cannot continue to support the currency on a sustained basis.
“In the next three to six months, or even longer, as long as those divergences in monetary policy remain and those differences persist, you will continue to see a weaker yen,” said Brendan McKenna of Wells Fargo Securities.
In a busy day for markets, the British pound parried the small gain made after the Bank of England raised rates by 50 basis points. The British currency was up 0.2% at $1,129, close to a fresh 37-year low hit earlier at $1,121.
The euro was little changed at $0.9838, recovering from a fresh 20-year low hit earlier in global trading. The dollar index fell 0.3% to 111.17 units, from a 20-year high hit earlier in the day at 111.81.
The Mexican currency had a collateral impact. The peso operates at 19.94 units per dollar with an appreciation of 0.32%, with the exchange rate touching a minimum of 19.8401 and a maximum of 20.0787 pesos. The appreciation of the peso is the result of a weakening of the dollar overnight, after the Japanese Ministry of Finance intervened in the foreign exchange market, to support the Japanese yen.
“The intervention of the Japanese yen had an effect on most currencies, since it was carried out in the Asian session, where the liquidity of the market is dominated by Asia and not by the European or American continent. The intervention should not be interpreted as a turning point for the price of the yen, since the weakness of this currency is fundamental for its economy, since it is related to the widely flexible monetary stance of the Bank of Japan, which continues trying to encourage its economy,” said Gabriela Siller, deputy director of economic analysis at Banco Base.
With information from Reuters