Anna 
The Japanese yen extended its decline on Monday, failing to find support after mixed signals from the Bank of Japan (BOJ) and heightened expectations of prolonged U.S. interest rate hikes pushed the currency towards levels last seen in 1986.
The USD/JPY pair surged beyond the 160 level, reaching a 34-year high of 160.20, reflecting a weakening yen despite Japanese markets being closed for a holiday.
The BOJ’s recent meeting offered no clear direction on monetary policy. While the central bank raised its inflation outlook, it also revised down its economic growth forecasts, casting doubt on the extent of potential monetary tightening in 2024. The BOJ’s first rate hike in 17 years in March had limited impact on the yen’s strength.
Soft inflation data from Tokyo further undermined confidence in the BOJ’s inflation projections. April’s data fell below the central bank’s 2% target rate.
Persistent concerns over the significant interest rate differential between the U.S. and Japan also weighed heavily on the yen. The U.S. PCE price index, a key inflation gauge, exceeded expectations for March, reinforcing expectations that the Federal Reserve would delay rate cuts.
The Federal Reserve’s upcoming meeting is expected to maintain rates and project a hawkish outlook, with potential rate cuts not expected until September or later.
Despite fears of intervention, the USD/JPY pair surpassed anticipated intervention levels, with Japanese officials providing verbal warnings but taking limited action to stem the yen’s decline. A weaker yen benefits Japan’s export-dependent economy, highlighting the delicate balance for policymakers.
