Plummeting Yen Value... Lowest Against Major Currencies Except the Dollar

The value of the Japanese yen is falling to its lowest levels against major currencies, excluding the US dollar.

Yonhap News Agency

According to the Nihon Keizai Shimbun (Nikkei) on the 23rd, the yen-to-Swiss franc exchange rate surged to the 187-yen range at one point on the 18th, setting a new all-time high. The yen-to-euro exchange rate also climbed to the 174-yen range in the foreign exchange market on the 19th, approaching the previous record high of the 175-yen range set in July last year.

Nikkei reported that the yen is also trading at high levels against the British pound, the Brazilian real, and the Mexican peso. However, while the yen-to-dollar exchange rate rose to the 161-yen range in July last year, it has recently remained around the 147-yen range.

The main factors behind the yen's weakness are cited as yen carry trade and the uncertain political situation in Japan. The yen carry trade was identified as the cause of the sharp rise in the yen-to-dollar exchange rate in July last year, but activity slowed after the Bank of Japan (BOJ), Japan's central bank, raised interest rates that same month. Although the BOJ raised its benchmark interest rate again in January this year, the real interest rate remains in negative territory. As a result, the yen carry trade has recently regained popularity.

Regarding Japan's political situation, the newspaper analyzed that the fact that most opposition parties support fiscal expansion measures such as a consumption tax cut is leading to selling pressure on the yen. Even if the new president of the ruling Liberal Democratic Party, to be elected on October 4, takes office as prime minister, the opposition's preference for fiscal expansion is likely to be reflected in government policy due to the current situation where the ruling party does not hold a majority in both houses.

The prevailing view in Japan's financial sector is that unless the BOJ implements a significant interest rate hike or there is a major increase in outward direct investment, the weakness of the yen will persist.