Policymaker assembly ends with yen standing upright

The yen demonstrated a significant strengthening on Tuesday in response to the news of an upcoming meeting between Japan’s finance ministry and central bank.

Simultaneously, the dollar surged to a two-month high against a basket of its peer currencies following the resolution of the U.S. debt ceiling issue.

After the news was made public, the US dollar witnessed a slight decline of 0.18% compared to the Japanese yen, reaching a settlement at 140.18.

The Japanese Ministry of Finance revealed that esteemed representatives from the Ministry of Finance, Bank of Japan, and Financial Services Agency would gather for a meeting starting at 5:30 p.m. (0830 GMT).

Before this announcement, the U.S. currency had reached a six-month high of 140.93 yen.

In the past year, investors closely monitored the policy decisions of the Bank of Japan, particularly after their intervention to strengthen the yen.

This year, attention has shifted to the possibility of the bank altering its ultra-loose monetary policy stance and the timing of such adjustments.

Kenneth Broux, the head of corporate research for FX and rates at Societe Generale, expressed doubts about the likelihood of foreign exchange intervention at current levels.

“I believe the threshold for actively selling the dollar is higher,” he remarked. “This is just the beginning of an attempt to slow down the pace of yen depreciation.”

Jane Foley, the head of FX strategy at Rabobank, concurred that the meeting was unlikely to result in policy changes but suggested that it could indicate a shift in policy sentiment.

She highlighted the significance of the Bank of Japan’s meeting in July for insights into the future of the Bank’s yield curve control policy.

Meanwhile, the greenback index, which trials the worth of the U.S. currency against six mainstream currencies, rose by 0.2% to reach 104.51, its peak level in the past 10 weeks.

In the previous week, the value of the dollar increased as a result of heightened demand for safe-haven currencies due to apprehensions surrounding a potential default by the United States.

However, this week, the dollar continues to strengthen as it appears that the United States will successfully evade default.

These circumstances signify a notable surge in demand for the U.S. dollar.

She also emphasized that market focus has shifted to whether the U.S. Federal Reserve will raise interest rates again, potentially in July, though not necessarily in June.

This, combined with a reassessment of market positions (as many investors have been reducing their dollar holdings since the end of last year), has contributed to the ongoing support for the dollar.

Over the weekend, President Joe Biden and Republican House Speaker Kevin McCarthy reached an agreement to temporarily suspend the U.S. debt ceiling and impose spending limits to prevent a debt default.

However, a few hard-right Republican lawmakers expressed their opposition on Monday, posing a risk to the passage of the deal in Congress before the debt limit is reached. The deadline for this is expected to be next Monday.

In other currency movements, the euro experienced a decline of 0.28% against the dollar, settling at $1.0674, while the pound dropped 0.13% to reach $1.2345.

Meanwhile, China’s onshore yuan weakened to 7.0995 per dollar after the country’s central bank set the fixing at its weakest level since December.

Additionally, the offshore yuan also declined below the significant level of 7.1 per dollar.

Furthermore, the Turkish lira continued its downward slide, reaching a new record low following President Tayyip Erdogan’s victory in the country’s presidential election on Sunday.

Given several current predicaments, the rising yen is a dire sign of relief to the concerned markets, although the greenback raised reasonable concerns. If the environment-sensitive dollar rebounds after the debt-ceiling crisis, it will likely reign above all again.