"The Japanese yen is no longer a safe-haven currency"…falls to the 'weakest currency'

"We have not lowered our guard for a moment."

Atsushi Mimura, vice minister of finance for international affairs at Japan’s Ministry of Finance, stressed on the 12th that authorities remain on alert over the yen’s weakness. That day, the yen–dollar rate, which had been moving in a yen-strengthening direction around ¥153 per dollar, slid to the low ¥152 range after his verbal warning.

According to the Nikkei on the 17th, Mimura’s vigilance stems from sharp swings in the yen’s value. The yen–dollar rate rose to the ¥159-per-dollar range on the 23rd of last month, then strengthened to the ¥152 range after U.S. authorities conducted a “rate check,” a step that precedes FX intervention.

When Prime Minister Sanae Takaichi made remarks on the 31st of the same month that could be interpreted as “tolerating a weak yen,” the rate surged again to the ¥157 range per dollar on the 5th of this month. More recently, yen buying has regained the upper hand following the Liberal Democratic Party’s landslide victory in the House of Representatives election on the 8th.

In the market, calls for a “weaker yen” are increasingly prominent. Toru Sasaki, chief strategist at Fukuoka Financial Group, told Nikkei, “Considering fiscal and monetary policy, it’s hard to envision a shift to yen appreciation,” adding, “A weak yen reflects a deterioration in Japan’s economic strength. It is no longer the safe-haven currency it once was.”

Companies are also not letting down their guard against yen weakness. A survey by Tokyo Shoko Research of about 6,100 firms in December last year found that 40% said an exchange rate around ¥156 per dollar would be “negative for management.”

The yen’s decline is also pronounced against currencies other than the dollar. On the 23rd of last month, it jumped to the high ¥186s per euro, setting a new post-1999 record since the introduction of the single currency, the euro. The same holds true versus the Swiss franc. In recent years, its status as the “weakest currency” has become fully entrenched.

Looking at real interest rates adjusted for inflation, the reason yen selling persists is clear. The U.S. policy rate is 3.5–3.75% a year; subtracting inflation leaves roughly 1%. Japan’s policy rate is 0.75% a year, leaving real rates in negative territory. In financial markets where money flows to currencies with more favorable returns, it is natural that the yen is not chosen.

One key for the yen to break free from its “weakest currency” label is the Bank of Japan’s move to seek additional policy-rate hikes. At its January Monetary Policy Meeting, the BOJ raised its forecasts for growth and inflation. A BOJ official told Nikkei, “It signaled a hawkish stance (favoring additional rate hikes), but even so, depreciation pressure on the yen remains strong.”

On the 16th, Prime Minister Takaichi met BOJ Governor Kazuo Ueda for about 15 minutes at the prime minister’s official residence. After the meeting, Governor Ueda told reporters, “It was an exchange of views on general economic and financial conditions.” Asked whether he had gained the prime minister’s understanding regarding the BOJ’s monetary policy and its policy-rate-hiking stance, he replied, “There is nothing in particular I can speak about in terms of specifics.”

Tokyo = Kim Il-gyu, correspondent black0419@hankyung.com