Amid escalating geopolitical risks originating from the Middle East, the Japanese yen fell to its lowest level in about 34 years on the 15th. The Tokyo stock market also showed a decline of around 1%.
On that day in the foreign exchange market, the yen-dollar exchange rate surpassed 153.7 yen per dollar, approaching the 154 yen per dollar mark. As a result, the yen's value dropped to its lowest level since June 1990. Despite the Japanese authorities' recent repeated 'verbal interventions' against the yen's depreciation trend, the yen's weakness shows little sign of abating.
In particular, with the geopolitical risks from the Middle East intensifying risk-averse sentiment, clear movements of dollar buying and yen selling were observed in the market that day. This is due to growing concerns over a rebound in inflation caused by rising international oil prices, which strengthens the argument that the U.S. Federal Reserve (Fed) will take a more cautious approach to interest rate cuts.
FXStreet stated, "This ultimately suggests that a large interest rate differential between the U.S. and Japan will persist for the time being," adding, "which will continue to weaken the yen's value."
Kyodo News reported that the yen's value has already surpassed the level at which Japanese authorities intervened in 2022 to stop the sharp decline. Finance Minister Suzuki Shunichi said regarding the yen's weakness, "We are closely monitoring the situation" and "will take all necessary measures."
The Tokyo stock market is also in a downward trend. Due to the armed conflict between Iran and Israel, the Nikkei 225 index was trading around 39,179 points in the afternoon, down about 0.9% from the previous session. During the morning session, the psychological support level of 39,000 points was breached, resulting in a drop approaching 2%.
The Nikkei Average Volatility Index (VI), which indicates market volatility, briefly exceeded the baseline of 20, signaling heightened anxiety. Nihon Keizai Shimbun reported that one indicator of market anxiety is the options market, where a rise in put option prices betting on a stock price decline was confirmed. Mizuho Securities analyst Miura Toyo analyzed, "Demand is concentrated on puts below 38,000 yen rather than calls above 40,000 yen," indicating "many investors are cautious about a downward phase."
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