The yen reached a 34-year low against the US dollar on Monday, falling below 160 yen per dollar. and marking its worst performance since April 1990. This move comes after the Bank of Japan opted to keep its monetary policy unchanged last week.
In the early hours of Monday, the dollar hit a 34-year high as it traded as high as 160.20 yen, showing its best performance since April 18, 1990. So far this year, the dollar has gained about 14 % against the yen, compared to the beginning of 2024, when each dollar was exchanged for 140.82 yen.
Rates in Japan unchanged
The Bank of Japan’s Policy Council voted unanimously to keep the short-term benchmark rate in the range of 0% to 0.1%, unchanged from its previous meeting, thus postponing the expected policy tightening monetary of the country.
Regarding inflation, the forecasts for the reference Consumer Price Index (CPI) were revised upwards, standing at 2.8% for 2024 and 1.9% for 2025, while a rise is expected for 2026. increase of 1.9%. However, core inflation forecasts remained unchanged, projecting 1.9% for this year and next, and 2.1% for 2026.
“Investors believe the Bank of Japan has largely done its job and are anticipating a single rate hike before the end of the year. However, I think The market consensus collides with the moment of the cycle in which we find ourselves“comments John Butler, macroeconomic expert at Wellington Management.
The expert comments that inflation and growth data are stable and that the Bank of Japan “seems increasingly confident that it will achieve its hitherto elusive price stability target of 2%,” so “the transition to neutral ground could be faster than expected.
“The Bank of Japan is carefully and gradually normalizing monetary policy […] We see that this relatively moderate approach will persist to support the revival of Japan’s domestic growth, a macro context that, in our opinion, is conducive to risk,” they comment from Blackrock.
A higher yen is not expected… at the moment
Analysts see that behind this movement of the yen, therefore, is a Japanese government “forcing” the currency machinery and keeping it low with very slow increases in rates, without much hurry to raise them again.
“There are reasons for authorities to be comfortable with a weak currency and allow a weaker yen. It helps improve the competitiveness of the export industry, while the risks of importing inflation are limited due to the current environment of disinflation and lower commodity prices,” comments David Alexander Meier, Economist, Julius Baer.
The expert, therefore, believes that the authorities of the Asian country do not have much intention to fight against this weak yen: “We see less chance of a yen recovery and therefore, we have revised downward our outlook for the yen to $160 per yen over the forecast horizon,” he added.
For his part, Butler believes that a possible instability of Japanese bonds and further weakness of its currency “could jeopardize Japan’s consideration as an anchor of the global market and raise doubts about debt sustainability.
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