The Japanese yen falls to its weakest level since 1986

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The Japanese yen fell to its weakest level against the U.S. dollar since 1986, putting traders on alert that officials may again have to intervene to support the struggling currency.

The yen fell 0.6 percent against the dollar to 160.65 yen on Wednesday, surpassing the level it reached in late April before Japan’s Finance Ministry spent a record 9.8 trillion yen ($62 billion) to boost the currency.

In response to the latest decline, Masato Kanda, Japan’s top currency official, told reporters that the government is “deeply concerned” about the yen’s decline and will respond to any “excessive” moves.

“If we get a sudden rise to ¥162, they could use that as a reason to justify another intervention,” said Derek Halfpenny, head of research at MUFG.

Halpenny added that the Japanese government would not want to let the currency fall too much because the weak yen had led to higher costs of living and that Prime Minister Fumio Kishida would be keen to shore up support ahead of his Liberal Democratic Party’s leadership election in September.

The yen has fallen 12 percent against the dollar this year, as investors trimmed their expectations for Federal Reserve rate cuts, pushing the US currency higher. Although the Bank of Japan ended eight years of negative interest rates in March, it was cautious about the possibility of further increases in Japanese borrowing costs.

But the yen’s recovery to 151.85 yen to the dollar in early May after Japan’s previous intervention in the market quickly gave way to further weakness, with investors focusing on the huge gap between US and Japanese interest rates.

Analysts have warned that authorities may be reluctant to intervene again, given the fleeting impact of previous efforts.

“The amount of money that was spent before and the fact that its impact was very short-lived is not encouraging for a repeat of this soon,” said Themos Fiotakis, head of global foreign exchange at Barclays. “As long as the interest rate spread is wide, this pressure on the yen will continue.”

Japanese officials said they do not defend the currency at a specific level, and tend to intervene after sharp declines rather than gradual ones. Some analysts expect they may wait to intervene until after the next elections in France and the release of US data that could support the yen if there is further evidence that the world’s largest economy is slowing.

“Japanese officials will have to choose carefully,” Halfpenny said. “The French elections may trigger some yen buying if there is a significant devaluation of the euro… Next week’s US payrolls report may allow the yen to strengthen.”