Hi Investment & Securities diagnosed on the 23rd that if the yen-dollar exchange rate surpasses 155 yen amid the recent sharp decline in the yen's value, the domestic won-dollar exchange rate could also break through 1400 won.
Researcher Park Sang-hyun said, "Despite the joint verbal intervention by the finance ministers of Korea, the US, and Japan, and the joint statement on the foreign exchange market by the G7 finance ministers, the weak yen sentiment has not been broken," adding, "The dollar-yen exchange rate is approaching 155 yen, closing at 154.8 yen on April 22, marking the highest level since June 1990."
He diagnosed, "If the psychological threshold of 155 yen is surpassed, it cannot be ruled out that the dollar-yen exchange rate could rapidly rise to 170 yen, as some expect."
He pointed out, "The excessive super weak yen phenomenon could act as a negative factor that dampens the recovering Japanese economy," and added, "The ultra-super weak yen phenomenon could potentially have adverse effects on inflation and the domestic economy."
He continued, "It is highly likely to pose a significant concern for the Bank of Japan, which is attempting a gradual shift in monetary policy to support domestic recovery," and forecasted, "From the Bank of Japan's perspective, to prevent the ultra-super weak yen phenomenon, it will face pressure to implement additional interest rate hikes early."
What is particularly problematic is that if the dollar-yen exchange rate surpasses 155 yen, the theory of a Japanese crisis could resurface. In September to October 2022, when the yen's value sharply declined due to the Federal Reserve's aggressive rate hikes, concerns about a Japanese economic crisis also emerged. There is also a possibility that the government debt crisis theory could spread if the tightening stance strengthens amid the government debt burden.
For these reasons, it is expected that the Japanese government will actively try to prevent the yen from breaking through 155 yen.
Researcher Park said, "Although it is not known what agenda was discussed at last week's US-Japan finance ministers' meeting, it is possible that the US side agreed to direct intervention in the foreign exchange market," and added, "If the dollar-yen exchange rate surpasses 155 yen, it is judged that the Japanese government has a high possibility of actively intervening in the foreign exchange market."
Domestic investors also need to closely monitor the direction of the yen's value, as the dollar-yen exchange rate greatly influences the dollar-won exchange rate trend.
Researcher Park analyzed, "If the Japanese government tolerates an exchange rate level above 155 yen, further rises in the dollar-won exchange rate, that is, breaking through 1400 won, cannot be ruled out," and "Conversely, if the Japanese government's active market intervention causes the dollar-yen exchange rate to fall sharply, the dollar-won exchange rate is also likely to fall accordingly."
He added, "If the dollar-yen exchange rate instability joins the already heightened uncertainty risks in the financial market due to Middle East geopolitical risks and delayed US Federal Reserve rate cuts, financial market instability will be further amplified," emphasizing, "The results of the Bank of Japan's monetary policy meeting to be held on the 25th and 26th will be an important turning point."
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