Yen tumbled in European trade on Wednesday against a basket of major rivals, sharpening losses for the second session against the dollar and plumbing 34-year lows, and almost trading below 152 against the dollar. 

Yen’s decline to three-decade lows prompted Japanese authorities to send out the strongest warning yet of a possible intervention into the forex market, with the finance minister stating authorities will take “decisive steps”. 

The Price

JPY/USD rose 0.3% to 151.97, the highest since 1990, with a session-low at 151.45, after closing down 0.1% yesterday following strong US data. 

Bearish Remarks

Bank of Japan’s member Naoki Tamura said on Wednesday that the BOJ must move slowly but steadily towards policy normalization. 

He said he won’t gauge the extent of expected interest rate cuts by the BOJ, as such decisions will rely on data and economic developments.  

However, he did say that the BOJ won’t raise interest rates as fast as the Fed did. 

Crucially, he said that if the Japanese economy showed signs of weakness, the BOJ will apply an accommodative policy that could include renewed negative rates. 

Why is the Yen Collapsing after Rate Hike? 

The yen fell 1.5% since the BOJ raised interest rates last week, with traders still focusing on the massive rate gulf between Japanese and other advanced economies. 

Stronger Warning by Japanese Authorities 

Japan’s finance minister, Shinuchi Suzuki, said on Wednesday that Japanese authorities are monitoring the forex market closely and will take “decisive measures” to protect the currency.

Such wording was used in previous instances when Japan did intervene to boost the yen’s standing against major rivals. 

Previous Instances of Government Intervention 

The Japanese government last intervened in October 2022 when the yen fell below 150 against the dollar and hit 151.94 for the first time since 1990.

Japan’s finance minister then purchased large amounts of yen and pushed the price towards 127 by January 2023, which is a 16% surge in value. 

Yen Forecasts 

Yen’s weakness makes imports costlier to Japan and feeds inflation, while making exports more competitive. 

West Bank’s analysts said that the accommodative stance by the BOJ still reflects the structural weakness of the Japanese economy and the stark difference in policy with the Federal Reserve. 

The Australian dollar fell in Asian trade on Wednesday against a basket of major rivals on track for the second loss in a row against its US counterpart, and becoming the worst performing G8 currency following weak inflation data. 

Prices have settled at two-year lows, which reduced pressure on the Reserve Bank of Australia, and bolstered the case for starting interest rate cuts in the second half of the year. 

AUD/USD

AUD/USD fell 0.35% today to 0.6511, with a session-high at 0.6539, after losing 0.1% on Tuesday, the third loss in four days. 

Worst Performing Major Currency

The Aussie is the worst performing G8 currency today, with a 0.35% drop against the US dollar, and a 0.3% drop against both the euro and the pound, with a 0.25% drop against the Swiss franc, and a 0.3% decline against the yen. 

The Aussie lost 0.25% against its Canadian counterpart, and 0.1% against the New Zealand dollar. 

 Inflation Data

Australian consumer prices rose 3.4% in February, below estimates of 3.5%. It’s the lowest reading since November 2021. 

Prices have held at this level for three consecutive months, showing stability and approaching the 1-3% target set by the RBA.

Australian Rates 

The Reserve Bank of Australia is now more likely to cut interest rates in the second half of the year, with strong odds of such a cut in September. 

Aluminum prices are still trapped in sideways trading after a 2.78% drop in February, with prices edging up in the first three weeks of March, now standing 2.17% above the end of February.  

Is there correlation with copper prices? 

As the year’s first quarter draws to an end, aluminum prices continue to show modest momentum amid market uncertainty, with prices scaling 11-week highs on March 18 in tandem with copper prices. 

However, aluminum remains largely trapped in sideways trading, with potential for a breakout as aluminum sentiment is historically linked to copper and tin, as both have enjoyed recent gains. 

However, the links between mains metals were corroded in 2023, as copper and tin faced unique supply threats, while aluminum output remained strong in 2023 in the face of weak demand.  

Investment Funds

The positions of investment funds carry important implications for the metals market, with recent data indicating a slight positive attitude towards copper futures by a batch of global funds compared to aluminum according to the London Metals Exchange. 

And for all metals, the connection with the Federal Reserve is strong, with the Fed deciding to maintain interest rates in March while hinting at a likely rate cut in June, which in turn could support growth and demand on metals.

The China Issue 

In the US, aluminum demand is at most tepid, however the outlook in China is more unclear as markets monitor demand-supply dynamics. 

Recent data indicated slight growth in Chinese aluminum demand while output slowed down in the first few months of 2024. 

US industrial production rallied 7% in the first two months of 2024, which is usually a strong engine for demand on all industrial metals, including aluminum. 

US stock indices rose on Tuesday after a series of losses as markets assess latest data.

US durable goods orders rose 1.4% in February to $227.9 billion, after a 6.9% drop in January. 

Now investors await important US personal spending data later this week, considered the Fed’s favorite inflation gauge, and expected to have risen 0.3% in February. 

On trading, Dow Jones rose 0.2%, or 70 points as of 15:39 GMT to 39,384, while S&P 500 rose 0.2%, or 13 points to 5231, as NASDAQ rose 0.4%, or 60 points to 16,444.