US 10-Year Treasury Yield Hits Highest Since May 31
Inflation Reignited Over Trump Reelection Possibility
Widening US-Japan Interest Rate Gap Weakens Yen
Dollar-Yen Exchange Rate May Reach 170 Yen
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The value of the yen once again hit a new 37-year low, surpassing 161.7 yen per dollar. In the market, there are warnings that if the Bank of Japan does not present effective tightening measures at the monetary policy meeting scheduled for the end of this month, the dollar-yen exchange rate could break through 170 yen per dollar.
On the 1st (local time) in the New York foreign exchange market, the yen-dollar exchange rate surged to 161.73 yen per dollar during the session (yen depreciation). This is the lowest level for the yen since December 1986, about 37 years and 6 months ago.
Since the dollar-yen exchange rate exceeded 160 yen on April 29, it has continued to rise daily, surpassing 161 yen on the 28th of last month, just two months later. The Japanese government has intervened in the foreign exchange market to defend the yen after the exchange rate rose to 160 yen per dollar, but these interventions have had only temporary effects, with the exchange rate rebounding shortly afterward repeatedly.
The yen weakened again on this day due to the rise in U.S. Treasury yields, which triggered yen selling and dollar buying. The 10-year U.S. Treasury yield is currently at 4.49%, the highest level since May 31. During the first U.S. presidential debate held on the 27th of last month, concerns about President Joe Biden’s cognitive abilities surfaced, increasing the likelihood of former President Donald Trump’s re-election, which sparked fears of reignited inflation and caused Treasury yields to rise. Former President Trump is poised to implement anti-immigration policies that could drive up labor costs and tariff hikes that could increase import prices.
Some speculate that the yen-dollar exchange rate could soar to 170 yen per dollar. The Bank of Japan (BOJ) is expected to announce plans to reduce the scale of its monthly 6 trillion yen government bond purchases at the monetary policy meeting on the 31st of this month. Reducing bond purchases is expected to withdraw some liquidity from the market and cause long-term interest rates to rise.
Regarding this, Ales Kutny, Head of International Rates at Vanguard, said, “If the BOJ announces a slight reduction in bond purchases (not meeting market expectations), market disappointment could grow, causing the yen to fall rapidly,” adding, “In that case, the dollar-yen exchange rate could rise to 170 yen.”
There are also voices calling for Japan to defend against yen depreciation by narrowing the interest rate gap between the U.S. and Japan through additional short-term base rate hikes. According to a Bloomberg survey, only one out of three analysts expects the BOJ, which raised the short-term base rate from -0.1% to 0~0.1% in March, to raise rates again this month.
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