The yen will depreciate sharply against the US dollar in 2022.
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this yen USD/USD fell to 160 in early Asian trading on Monday.
FactSet data shows that the yen once hit 160.03 against the dollar, its lowest level since hitting 160.15 in April 1990. The currency was firmer at around 156.5 against the US dollar at noon.
As expectations for an interest rate cut by the Federal Reserve have been postponed, the dollar continues to strengthen and the currency has weakened. The Fed’s preferred inflation gauge came in slightly higher than expected on Friday, underscoring the difficulty the central bank faces in dealing with sticky inflation.
The yen has been trading around 150 or lower against the dollar since the Bank of Japan ended its negative interest rate regime in March. On Friday, the central bank kept interest rates unchanged and slightly raised its inflation forecast for fiscal 2024.
Three-month performance of the yen against the U.S. dollar
Bank of Japan Governor Kazuo Ueda told a news conference on Friday that exchange rate fluctuations would only affect monetary policy if they had a “significant” impact on the economy, according to a Reuters translation of his remarks.
According to Reuters, Ueda said, “If the yen trend has an impact that is difficult to ignore on the economy and prices, this may become a reason to adjust policies.”
Yen intervention?
Japanese authorities have repeatedly The Bank of Japan warned against “excessive” yen volatility but has yet to issue an official statement on boosting the yen. Some market watchers had doubted authorities would intervene at the 155 level, but the yen fell below that level last week.
Vincent Chung, associate portfolio manager for T. Rowe Price’s diversified income bond strategy, noted that officials appear to be more focused on currency volatility rather than specific levels.
“The current depreciation rate is slower than in 2022, so the intervention response may not be as strong,” Chung said. He noted that option pricing showed market expectations that the Bank of Japan might intervene after its May meeting.
Other experts have made similar remarks, telling CNBC that there is no magic “bottom line” for yen intervention. Last week, Frederic Neumann, chief Asia economist and co-head of Asia global research at HSBC, said it was more important to monitor how the yen weakened.
The economist said there might not be much resistance from Japanese authorities if the yen “depreciates steadily”.
Jesper Koll, expert director at investment advisory firm Monex Group, predicted that Japanese officials would take action if the yen moved more than 3-5 yen over a 12-hour period, which is when the yen suffers a real speculative attack.
Shortly after the yen hit 160 on Monday, Cole said any intervention “would be a waste of Japan’s national assets” as the country sells dollars to buy yen. Cole said that without fundamental changes, the yen could weaken further to 200-220 against the dollar.
Cole said intervention is “free liquidity” for speculators and will continue to be so unless the Fed signals a rate cut, weakening the dollar, or Ueda says domestic demand-driven inflation must be curbed.
Still, T. Rowe Price’s Chung said the weaker yen “has had a positive impact on stock market performance, encouraging companies to raise wages and bringing Japan closer to the Bank of Japan’s (BoJ) 2% inflation target.”
Japanese markets were closed on Monday for a public holiday.
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