Yen Falls to Four-Decade Low Against the Dollar as Tokyo Weighs Intervention

The Japanese yen weakened to roughly 162.27 per United States dollar in Tuesday's Asian session. That was its lowest level against the dollar since 1986, according to Euronews and market data. Japan's finance minister, Satsuki Katayama, said the government is ready to act against what she called excessive currency moves. That is a standard warning, and investors read it as a signal that direct intervention is near.

The cause is the gap between Japanese and American interest rates. With traders again betting that the Federal Reserve will raise rates later this year, the carry trade, in which investors borrow cheaply in yen to buy higher-yielding dollar assets, keeps pushing the currency lower. Tokyo spent more than 11.7 trillion yen, about 72.8 billion dollars, between April and May to support the yen. The effect lasted only weeks.

The same dollar strength affected other markets. A firmer dollar and renewed expectations of Federal Reserve rate increases pushed gold down toward 4,030 dollars an ounce on Monday, with silver near 59 dollars. United States stocks still rose, with the Dow Jones Industrial Average closing above 52,000. In Tel Aviv, technology shares led gains on Tuesday, tracking a rebound in global semiconductor stocks and gains in United States markets.

From an Austrian-school perspective, the reading is straightforward. The Bank of Japan has kept monetary policy far looser than the Federal Reserve for years, and a currency's value reflects that choice. Intervention spends reserves to fight a gap that only a change in relative monetary policy can close. That is why each round of buying has provided less time than the one before.