Is the Yen’s Recent Increase only Temporary?

Despite impending economic worries that have slowed the U.S. currency’s rise, over two-thirds of currency strategists surveyed say the Japanese yen’s increase versus the dollar since mid-July is only a transitory move.

Just three weeks prior, the yen had fallen as much as 17.5 percent versus the dollar for the year, at one time reaching a 24-year low of 139.38 per dollar. After that, it increased 6.9% to 130.40 in two weeks before stabilizing above that mark. It was down roughly 14% for the year as of its most recent trading at about 134. The yen’s current surge versus the dollar will not endure, according to 17 of 28 respondents (or 61 percent) in a survey of international currency specialists conducted from August 1-3.

Analysts Predict

Analysts predicted that the yen would not rise soon since the Bank of Japan (BOJ) continued to be an outlier among global central banks by maintaining its ultra-easy monetary policy. The central bank’s framework to implicitly restrict the yield on 10-year Japanese government bonds (JGBs) at 0.25 percent is referred to as the “Yield-Curve Control” (YCC) policy by Tony Nyman of Informa Global Markets. Benchmark 10-year JGB rates have been under pressure due to the increase in U.S. Treasury yields this year, which prompted the BOJ to buy many bonds to defend its de facto yield cap, which fueled the yen decline.

The BOJ has denied rumours that CB may change the YCC framework to allow benchmark rates to increase and thus relieve yen pressure. Even those who claim that the current yen appreciation is not only a passing trend believe the reverse would take time. Jane Foley, head of FX strategy at Rabobank, predicted that the yen would finally rise to 128 per dollar in the upcoming 12 months. The process of USD/JPY moving down might take some time.

The yen should trade around 134.00 per dollar in the next three months, down from July’s prognosis of 133.00 made by the 54 currency experts who participated in the survey. The consensus projection from analysts revealed that the USD/JPY rate will be little altered from its July value of 131.00 at 131.33 in six months.