The yen is approaching a 40-year low economy

The yen remained hovering near its lowest levels in nearly four decades on Friday, with markets awaiting the possibility of Japanese authorities intervening to support it, after both the US-Iranian agreement and raising interest rates in Japan failed to stop its continued decline.

The dollar rose to 161.8 yen late yesterday evening, Thursday, approaching the level of 161.96 that it recorded in July 2024. Any additional rise in the dollar will push it to its highest levels against the yen since 1986.

The dollar was trading at 161.3 yen in the latest trading on Friday, but traders remained on alert in anticipation of the Japanese authorities intervening in the markets directly to support the currency, as they did in late April and early May of this year.

The effect of interest and Takaichi’s plans

Japanese interest rates, which remain much lower than their counterparts in advanced economies in the United States and Europe, put pressure on the yen and contribute to lowering its exchange rate against the dollar and the euro.

The Financial Times reported that the Bank of Japan raised the interest rate to about 1%, bringing the cost of borrowing to the highest level in 31 years.

The newspaper added that the increase of 0.25 percentage points, which was widely expected, represents an important step in the Japanese central bank’s efforts to normalize monetary policy after years of very low interest rates.

Concerns about the spending plans announced by Japanese Prime Minister Sanae Takaichi undermined investor confidence and raised fears of an increase in the country’s general budget deficit.

Dollar rise

The dollar increased sharply this week, which increased pressure on the yen, as it rose 1% against other major currencies, reaching its highest level in 13 months.

This is partly due to the Federal Reserve meeting on Wednesday, which fixed the interest rate.

“In the near term, the dollar may benefit, for a while, from the enthusiasm that followed the Federal Reserve meeting,” Francesco Pesoli, a foreign exchange analyst at ING, told Reuters, which gave a boost to the dollar against other currencies.

The US currency, which is considered a safe haven, also received support today, Friday, due to the tension surrounding the agreement between the United States and Iran to end the war between them. Switzerland announced that American talks with Iranian negotiators will not be held today.

The dollar rose against European currencies early in the day, but this rise began to fade by the evening in Europe.

The euro reached its lowest level in three months at $1.1418 before recovering to trade slightly higher at $1.1464.

The British pound reached its lowest level in more than two months at $1.3164, but eventually settled at $1.322, rising 0.1% during the day.