The Japanese yen saw a significant decline in the Asian market on Friday, hitting a four-month low against the US dollar. The decline, which was the fifth in a row, was supported by negative economic data that showed a slowdown in the Japanese economy during the third quarter. Japan’s economic growth did not exceed 0.2% during this period, reflecting a significant slowdown compared to 0.5% growth in the second quarter. This slowdown in growth lowered expectations for a rate hike in Japan in December, adding further pressure on the Japanese currency.
The yen’s losses accelerated as the yield on ten-year US Treasury bonds rose, following hawkish comments from the head of the US Federal Reserve. Comments suggesting a continuation of tight monetary policy reduced the chances of a U.S. interest rate cut in December, boosting the strength of the U.S. dollar and increasing pressure on the yen.
In light of this data, the US dollar rose 0.3% against the yen, reaching 156.74 yen, its highest level since July 23. These moves suggest that the yen is on track for its biggest weekly loss since late September, falling 2.75% against the dollar this week. This decline in the yen’s value also reflects the impact of the recent US elections, as markets continue to react to the fallout from Donald Trump’s victory in the presidential election. The yen is likely to remain under pressure in the short term, especially as Japan’s economy slows and US yields rise. At the same time, the continued divergence between monetary policies between the Bank of Japan and the US Federal Reserve may exacerbate the yen’s position in global markets.
The impact of US bond yields on the yen
US bond yields are one of the main factors influencing the movement of currencies in global markets, including the Japanese yen. When the yield on US bonds rises, especially on ten-year bonds, it increases the attractiveness of the US dollar to investors, which directly puts pressure on other currencies such as the Japanese yen. In the case of Japan, where the Bank of Japan still maintains a very flexible monetary policy with very low interest rates, rising U.S. yields strengthen the dollar and weaken the yen.
These high yields cause capital to be withdrawn from the Japanese markets to the US markets, as investors seek higher returns. When the yield on US bonds rises, the US dollar becomes more attractive to investors compared to the yen, which holds lower yields due to Japan’s low interest rate policy. These differences in yields between the two countries boost demand for the dollar, leading to a weaker yen. Moreover, the yen’s movement is affected by investors’ expectations regarding monetary policies in both countries. When the prospects of a rate hike in the United States increase, as happened recently under hawkish statements from the head of the US Federal Reserve, the pressure on the yen increases.
At the same time, the Japanese yen faces additional challenges due to Japan’s internal economic situation. Japan’s slow economic growth and low inflation make it difficult for the Bank of Japan to raise interest rates.
further diverging monetary policies between Japan and the United States. This divergence between monetary policies leads to the continued weakness of the yen against the dollar.
Factors affecting the price of Japanese yen
The Japanese yen is among the most influential economic and financial factors in global markets, as it is influenced by a number of local and international factors. Most notably, the Bank of Japan’s monetary policies, which directly affect the value of the currency. For example, the Bank of Japan maintains a very low interest rate policy, sometimes implementing massive stimulus programs such as asset purchases.
with the aim of stimulating Japan’s struggling economy. These policies increase the supply of the yen in the markets, weakening the currency.
Other factors affecting the yen are the differences between the monetary policy of the Bank of Japan and the US Federal Reserve. If the US Federal Reserve raises interest rates while the Bank of Japan sticks to accommodative policy, it widens the gap between yields on US and Japanese bonds. This divergence weakens the yen against the dollar, as investors prefer higher yields offered by US bonds.
Japan’s economic performance is also a decisive factor in determining the yen’s strength. If Japanese economic data, such as GDP or unemployment rates, indicate an economic slowdown, this could reduce demand for the yen. Conversely, if economic data shows improvement, it could boost the yen’s value, as investors consider Japan a relatively stable market.
Global geopolitical and economic tensions also play a role in the yen’s moves. In times of crisis or uncertainty, such as wars or global financial crises, the yen becomes a safe currency for investors, increasing its value. Conversely, if there is economic stability in other regions.
such as the United States or Europe, this could lead to a decline in demand for the yen.
