Yen Drops to Multi-Year Lows Against Dollar and Euro
The Japanese yen weakened significantly against the US dollar and euro on Tuesday, reaching multi-year lows and prompting heightened speculation of intervention by the Bank of Japan (BOJ) ahead of its policy meeting this week.
The euro surged to 165.71 yen, its highest level since 2008, following data indicating a faster-than-expected expansion in eurozone business activity. The dollar climbed as high as 154.88 against the yen, nearing the 155 level that market participants view as a potential trigger for Japanese intervention.
Analysts believe that the BOJ is likely to maintain its current policy stance at its upcoming meeting, potentially leading to further yen weakness. However, there is a strong possibility of market intervention on Friday night to prevent a more substantial decline towards 160.
Japanese Finance Minister Shunichi Suzuki has issued his strongest warning yet on the possibility of intervention, stating that last week's meeting with his US and South Korean counterparts laid the groundwork for action against excessive yen movements. However, doubts remain about whether Tokyo will intervene so close to the BOJ's policy meeting.
The yen's weakness comes amid expectations that the BOJ will maintain its ultra-loose monetary policy, while other major central banks, including the Federal Reserve, are tightening their policies. This divergence in monetary policy stances has contributed to the yen's depreciation.
Meanwhile, the dollar index fell after data showed a slowdown in US business activity in April. The euro climbed to a two-week peak against the dollar, while the British pound recovered from its recent lows after strong UK business activity data.
Investors will be closely watching key economic data releases this week, including US GDP figures and the PCE inflation index, for further clues about the global economic outlook and central bank policy decisions.