The yen sinks to a fresh 24-year low against the dollar as risk assets rebounded and investors ventured out of havens.
The currency falls more than 1% overnight and traded at 136.50 per dollar in Tokyo, its lowest since 1998.
“The demand for safe haven currencies is down today and that’s weighing on the yen,” said Brendan McKenna, a strategist for Wells Fargo.
Caught between a Bank of Japan keeping rates pinned to the floor to boost the local economy and a Federal Reserve hiking aggressively to rein in inflation, the yen is the worst performing Group-of-10 currency this year. Speculators have ramped up bets that the BOJ will eventually have to tweak its easy policy, something it doubled down on at its meeting last week.
A further 10% decline beyond the 140 per dollar level would be enough to trigger a central bank pivot, Nouriel Roubini told Bloomberg Television on Tuesday.
Signals from the options market suggest there’s more swings to come. One-month implied volatility, a measure of turbulence in the currency over that time frame, is close to the highest since the peak of the pandemic market fears in March 2020.
“The two drivers of yen weakness have been the narrowing in Japan’s current account surplus and the sharp increase in US minus Japan interest rate differential,” wrote Commonwealth Bank of Australia’s Joseph Capurso in a note Wednesday. “The case for monetary policy tightening in Japan is gradually building though is not made yet.”