On the morning of 30/6, one US dollar briefly traded at 162,27 Japanese yen. This marks the yen's weakest level since 1986.

Overall, the yen depreciated by nearly 2% against the US dollar in Q2, marking its fourth consecutive quarterly decline. In 2022, the yen experienced seven consecutive quarters of depreciation due to a widening interest rate differential with the US.

USD/JPY exchange rate over the past year. *Chart: Reuters*

The yen's recent weakness stems from rising oil prices, increasing Japan's need for US dollars to import fuel. Another factor is the interest rate differential between the US and Japan. US interest rates are currently 3,5-3,75%, while Japan's stand at 1%.

A weak currency drives up inflation and living costs in Japan. Officials acknowledge an inevitable economic drag.

"The question now is not if, but when Japan's Ministry of Finance will intervene to support the domestic currency", said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

However, Kong believes intervention cannot reverse the yen's depreciation trend. "We forecast the exchange rate will continue to climb to 164 JPY per US dollar early next year", she added.

The yen's value has not significantly changed despite Tokyo's recent interventions, totaling around 11.700 billion JPY (72,25 billion USD), and the Bank of Japan's rate hikes over recent months. Conflict in the Middle East raises inflation concerns and disrupts the global interest rate outlook.

Intervention reportedly began on 30/4, as the yen weakened against the US dollar to nearly 160 JPY per US dollar. This was its lowest level in almost two years. Since then, the yen has rebounded multiple times, fueling speculation of further official action. However, the yen remains under pressure as investors bet on the US Federal Reserve (Fed) raising interest rates this year.

This week, the US will release its June jobs report. New job creation has exceeded forecasts for three consecutive months, reinforcing the Fed's tightening stance. Investors are pricing in a 63% probability of a Fed rate hike before September.

The Dollar Index, which measures the US dollar's strength against six major currencies, currently stands at 101,6 points. The index is on track for its strongest monthly gain in almost a year.

Ha Thu (Reuters)