Yen Rally Shakes Up Markets Sending Dollar to Weakest Since May

The dollar tumbled to its weakest level in almost two months, a move amplified by a sharp rally in the yen that reverberated across global currency markets, Bloomberg reported.

The Bloomberg Dollar Spot Index kept ticking lower Thursday after slumping as much as 0.4% on Wednesday to its lowest level since late May. The Japanese currency broke through 156 to greenback in Tokyo trading on Thursday morning, amid ongoing speculation authorities could intervene again to prop it up.

The yen has surged about 4% since Thursday last week, when Japan is thought to have waded into the market with a surprise bout of buying. The currency was boosted the following day by another suspected intervention, and more recently by a prominent Japanese minister calling on the central bank to increase interest rates to boost the value of the currency, and former President Donald Trump flagging the exchange rate’s weakness.

The move in dollar-yen seems to be “sending shock waves” across other dollar crosses, said Valentin Marinov, head of G-10 FX strategy at Credit Agricole.

Kono Taro, who has long said he aims to eventually become Japan’s premier, highlighted on Bloomberg Television this week the problems generated by the yen’s sharp decline against the dollar, including the inflationary effect on domestic prices. Kono said that while a cheaper yen can help boost exports, the benefit to the country was now limited because many Japanese companies have production facilities overseas.

Meanwhile, in an interview with Bloomberg Businessweek, Trump said the strength of the dollar has been hurting the competitiveness of US exports while also pointing to the weakness of yen and yuan, raising concerns he may move to weaken the greenback if he were to win elections this year.

“We have a big currency problem,” he said. “I would always notice they fought very hard to keep their currency low.”

Others have pointed to profit taking ahead of policy decisions from the Bank of Japan and the Federal Reserve later this month. The dollar has weakened since reaching a seven-month high at the end of June as traders piled into bets its recent run was overdone.

The yen was up about 0.3% versus the dollar at 155.70 ay 8:57 a.m. in Tokyo.

“Some hot-money flows seem to be squaring some of their favorite G-10 bets of the past two months ahead of the central bank meetings,” said Roberto Cobo Garcia, head of G10 FX strategy at Banco Bilbao Vizcaya Argentaria SA in Madrid.