BOJ May Delay Adjustment of Monetary Easing Policy... Uncertain Rise in Japanese Yen Value

The Japanese yen exchange rate has remained in the 130-yen range per dollar for two months, deviating from market expectations that the yen's value would rise by the end of the year. This is analyzed as a result of the Bank of Japan (BOJ) likely postponing the abolition of its monetary easing policy, making market forecasts for yen appreciation uncertain.

According to Bloomberg on the 27th (local time), the yen exchange rate in the Tokyo foreign exchange market stands at 133.84 per dollar. The yen-dollar exchange rate stayed around 137 yen in early last month but fell to the 130-yen range as of the 24th due to the impact of the collapse of Silicon Valley Bank (SVB) in the United States.

This differs from previous market expectations. The market predicted that the dollar-yen exchange rate would fall to the 120-yen range as the global financial crisis increased preference for safe-haven assets like the yen.

The yen's stagnation is attributed to the BOJ's monetary policy. Experts have pointed to the interest rate gap between the U.S. and Japan as the main reason for the yen's depreciation. Since the U.S. Federal Reserve (Fed) began raising its benchmark interest rate from March last year, the interest rate gap with Japan widened. Consequently, investors sold off the yen.

However, according to Bloomberg, since October last year, the yen exchange rate has shown less correlation with the U.S.-Japan interest rate gap. In fact, even though the Fed raised its benchmark rate by 0.75 percentage points in November last year, the yen turned stronger. Subsequently, the exchange rate continued to decline, reaching the 120-yen range for the first time in six months in early last month.

Bloomberg explained, "With Kazuo Ueda's appointment as BOJ Governor, the market expected changes in Japan's monetary policy," adding, "Because policy revisions were anticipated, the exchange rate began to move accordingly."

As the influence of BOJ's monetary policy grows, there is analysis that it may be difficult for the yen's value to rise by the end of this year. With increasing expectations that the U.S. will halt interest rate hikes, the BOJ is also more likely to postpone adjustments to its monetary easing policy. Bloomberg diagnosed, "If the U.S. stops raising interest rates, the U.S.-Japan interest rate gap will not widen further," and "In such a case, pressure on the yen's depreciation will ease, reducing the BOJ's motivation to revise policy."

Japanese Yen [Image source=Yonhap News]

Japan's inflation outlook, expected to decline in the second half of this year, is also likely to delay BOJ's policy revisions. The BOJ's inflation target is 2%, but inflation has remained below this level for several years. Although recent figures have occasionally exceeded this target, a stable 2% level has not yet been reached. Rather, it is anticipated that the core consumer price index, excluding food and energy, will fall below 2% in the second half of this year.

Bloomberg explained, "Recently, Japan's 10-year government bond yield also fell below the 0.5% interest rate cap, and inflation is expected to slow," adding, "This means the BOJ still has time to delay policy revisions."

This content was produced with the assistance of AI translation services.