Japanese yen hits lowest level against dollar since 1986, raising intervention alert

The Japanese yen weakened to its lowest level against the U.S. dollar since 1986 on Tuesday, keeping investors on alert for possible intervention from Japanese authorities.

The yen fell to 162.19 per dollar as of 1.27 a.m. ET, marking its lowest level in four decades, according to data from LSEG.

Japan's Finance Minister Satsuki Katayama said Tuesday the government was ready to take appropriate action against excessive currency moves.

"That includes taking decisive action, as confirmed between Japan and the U.S.," Katayama said.

Chief Cabinet Secretary Minoru Kihara said at a regular press conference on Tuesday that the Japanese government will work to build an economy less vulnerable to foreign-exchange volatility while remaining prepared to intervene in currency markets if necessary. Kihara also declined to comment on the yen's current level.

Nomura's North Asia chief investment officer Julia Wang said Japan could intervene in the foreign exchange market after the yen slid to a fresh multi-decade low, although she expects any impact on broader markets to be short-lived.

While intervention is not tied to any specific exchange-rate level in theory, the move to a new cycle low for the yen could heighten domestic concerns about currency weakness and increase the likelihood of official action, she said.

"Intervention shouldn't be dependent on a certain level. It depends on the nature of the currency move, the nature of dollar-yen... This is a cycle high; it's a new cycle high. It probably is a sensitive level, it will re-ignite some of the anxiety around currency weakness domestically," said Wang.

Wang added that the yen's broader outlook remains weak because wide interest-rate and real-yield differentials between Japan and the U.S. continue to favor carry trades, in which investors borrow cheaply in yen and invest in higher-yielding assets elsewhere, putting downward pressure on the Japanese currency.

"I don't think it will be a material factor that derails the market," she said, arguing that any intervention would be unlikely to change the longer-term direction of the currency.

Between April and May, Japan deployed over 11.7 trillion yen ($72.8 billion) in foreign reserves to prop up the currency.

On April 30, the yen appreciated sharply to 156.6 against the dollar from 160.39, prompting speculation that Tokyo had stepped into the market. The currency appreciated to around 155 the following day before resuming its decline.

The Bank of Japan recently raised its benchmark interest rate to 1%, the highest level in more than three decades, as policymakers continued the monetary policy normalization that began in 2024.

The quarter-point increase marked the central bank's first rate hike since December, when it lifted rates to 0.75%, and brought borrowing costs to their highest level since 1995.

The move came as Japan grappled with rising inflationary pressures, partly fueled by higher energy prices during the Iran conflict.

Japanese government bond yields climbed sharply across the super-long end, with the 40-year yield rising 7 basis points to 3.779% and the 30-year yield gaining nearly 8 basis points to 3.914%.