The Japanese yen has fallen sharply in recent weeks, reaching lows not seen since last summer, sparking widespread concern in global financial markets. This significant decline came at a sensitive time.
as doubts grew about the Bank of Japan’s ability to continue raising interest rates in the coming period.
Last week, the yen fell below the 150-yen mark against the dollar, recording a loss of about 5% of its value last month. These it mainly led to investors’ expectations that the Bank of Japan may slow rate hikes in the near future.
while also speculating that the US Federal Reserve may ease the pace of rate cuts more slowly than expected.
The recent decline in the yen has revived interest in so-called “yen swapping trade,” a strategy in which investors rely on borrowing the yen to finance investments in currencies with higher yields. But the strategy failed last August after the Bank of Japan decided to raise interest rates, sparking turmoil in the markets.
The Bank of Japan raised interest rates this year for the first time since 2007, to 0.25%. For now, however, traders see the likelihood of another rate increase during the remaining meetings of the year as very slim. On the other hand, strong economic data in the United States is strengthening the US dollar, increasing pressure on the yen.
Recent movements in financial markets show that the significant change in the yen’s value came mainly from changing interest rate expectations in the United States.
coupled with investors’ postponement of expectations for a rate cut by the Bank of Japan.
Relationship between inflation & interest expectations
Inflation in Japan is one of the most prominent factors influencing the policies of the Bank of Japan, foremost of which is expectations of interest rate hikes. Although Japan has experienced low inflation rates for a long time.
there has been an increase in inflationary pressures, raising questions about the Bank of Japan’s ability to maintain its expansionary monetary policy.
Inflation in Japan has seen a slight decline recently, creating challenges for the central bank in its decisions. Related to the possible hike of interest rates. Since the beginning of the year, the Bank of Japan has raised interest rates for the first time since 2007, a move that came after a long period of monetary policy that relied on negative interest rates and quantitative easing.
This move was aimed at stimulating the Japanese economy and stabilizing prices.
as the central bank’s goal was to reach an inflation rate of about 2%. But with growing concerns about Japan’s economic slowdown and global impacts on the domestic economy.
it has become difficult to maintain this monetary policy.
especially with the decline in inflation rates.
Expectations of interest rate hikes in Japan are directly affected by the rate of inflation. If inflation continues to rise, the central bank may be forced to make rate hike decisions faster.
but if inflation continues to ease, it will be difficult for the bank to pursue tight monetary policy without negatively impacting economic growth.
Moreover, investors consider that high inflation in Japan may boost the bank’s chances of a focused bank. J to take additional steps to raise interest rates, which will directly affect the value of the Japanese yen in the financial markets.
Relationship of US economic data to decline of yen
The value of the Japanese yen has been significantly affected by recent US economic data.
as pressure on the Japanese currency has increased as the US economy improves. The relationship between US economic data and the yen rate is intertwined.
as the results of US data affect investors’ expectations regarding interest policies.
and thus contribute to the movement of currencies in general, including the yen.
The US economy, which is one of the largest in the world, has a direct impact on global financial markets.
including the Japanese currency. When positive U.S. economic data, such as GDP growth, labor market data, or rising consumption levels, increases optimism among investors about economic stability in the United States.
This optimism reinforces expectations of higher prices Interest by the US Federal Reserve.
which contributes to attracting capital towards the US dollar.
which leads to a decline in the value of the Japanese yen against the dollar.Conversely.
when weak US data is released, investors may see that the US economy may struggle to grow.
which could boost demand for the safe-haven yen.
But for now, with strong economic data in the US, the dollar is strengthening.
while the yen is under further pressure. This causes the yen to weaken to lows not seen in a long time.
especially as expectations of a slowdown in interest rate hikes grow.by the Bank of Japan, compared to the US Federal Reserve.
In addition, with the 2024 US presidential election approaching, there is political uncertainty that is also affecting markets. In this case, investors in the US dollar find a safer option, increasing pressure on the yen.