Australian dollar hits 10-year high against Japan’s currency after collapse

While the island nation recently exited its long-standing negative interest rate policy earlier this year, signs that the Bank of Japan does not intend to raise rates as quickly as expected have dragged the currency further into the doldrums over recent weeks.

IG analyst Tony Sycamore believes the Japanese government did have a hand in the currency’s sharp move on Monday.

“The move has all the hallmarks of an actual BoJ intervention and what better time to do it than on a Japanese public holiday, which means lower liquidity and more bang for the BoJ’s buck,” he said.

Rare opportunity

If the government did prop up the currency, it would be the first government aid for the yen since 2022 and would mark a “new line in the sand” for the yen, according to Convera currency strategist Steven Dooley.

“Back in 2022, the US dollar-yen was really focused around the 150 yen point and over the past few months, there’d been a lot of discussion of where they would intervene,” he said.

“The move overnight suggests that 160 yen (versus the US dollar) is where the Japanese Ministry of Finance has staked their claim, and we might need some significant change now to see that go higher.”

He added that hotter-consumer price data out of Australia last week, which stoked fears that the Reserve Bank would need to postpone rate cuts, had also buoyed the Australian dollar against the yen.

While Mr Dooley expects the currency to continue to hover around its current levels, he noted that a major shift in tone from the US Federal Reserve later this week could hit the yen further.

“The market is already expecting Fed chairman Jerome Powell to be more hawkish when he speaks on Thursday,” he said. “So it would need to be substantially more hawkish for us to see the US dollar strengthen more.”

But while the strong Australian dollar to yen exchange rate bodes well for holiday-goers, Mr Dooley said it may not stick around for long.

“It’s pretty incredible because since the 1990s every time the Aussie yen has gone up above 100, it’s ended up reversing pretty substantially lower soon after,” he said. “It doesn’t tend to stick around for long. So if you want to summer in Tokyo, now might be the time.”