The Japanese yen currency has fallen to its lowest level against the U.S. dollar since 1986.
The yen has declined to 162.19 per U.S. dollar, the lowest level in four decades and raising the risk of a possible currency intervention by Japanese officials.
Japan’s Finance Minister Satsuki Katayama said on June 30 that the government was ready to take appropriate action against excessive currency moves.
Another official, Chief Cabinet Secretary Minoru Kihara, said the government is prepared to intervene in currency markets if necessary.
The yen’s decline is being blamed on wide interest-rate and real-yield differentials between Japan’s currency and the U.S. dollar.
The yen is also being devalued by the so called “carry trade,” in which investors borrow cheaply in yen and invest in higher-yielding assets such as the U.S. dollar.
The carry trade puts downward pressure on the Japanese currency and has steadily devalued it over many years.
Between April and May of this year, Japan deployed over 11.7 trillion yen ($72.8 billion U.S.) in foreign reserves to help prop up the Asian nation’s currency.
The Bank of Japan recently raised its benchmark interest rate to 1%, its highest level in more than three decades but still well below the U.S. Federal Reserve’s rate of 3.50% to 3.75%.
Still, borrowing costs in Japan are now at their highest level since 1995.
Japanese government bond yields have climbed higher following the latest rate hike, with the 40-year yield increasing seven basis points to 3.779% and the 30-year yield reaching 3.914%.
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