Global Central Banks Running Again... Yen Breaking Through the Bottom

Yen Falls to 143 per Dollar
BOJ Maintains Ultra-Loose Policy... 'Decoupling' from Major Countries

The Japanese yen continues its 'record-breaking' weakness against major currencies. The main cause is the 'decoupling' between major central banks that are maintaining a rate-hiking stance and the Bank of Japan (BOJ), which continues its ultra-loose monetary policy. The market expects the yen-dollar exchange rate to surpass the 145 yen level next month.

[Image source=Yonhap News]

According to the global foreign exchange market on the 22nd (local time), the yen's value fell 1% against the dollar, trading in the 143 yen range. This is the lowest level in seven months since November last year.

Compared to other major currencies, the yen is also weak. The yen traded at around 156 yen against the euro, falling to the lowest level in 15 years since 2008. Against the Swiss franc, it dropped to around 159 yen, the lowest in 44 years since 1979. It declined against all currencies of the Group of Ten (G10). The won-yen exchange rate was 908.67 won per 100 yen as of 9:39 a.m. that day, down 0.46% from the previous day's reference price of 912.9 won at 3:30 p.m.

The widening interest rate gap between the BOJ and major central banks is causing the yen's value to plunge. BOJ Governor Kazuo Ueda repeatedly expressed his intention to maintain the ultra-loose monetary policy, while signals that rate hikes have not ended in the U.S. and Europe caused the yen to slide.

Jerome Powell, Chair of the U.S. Federal Reserve (Fed), appeared before the Senate Banking Committee hearing that day and reaffirmed a hawkish stance, stating, "The majority of the Federal Open Market Committee (FOMC) members expect two rate hikes this year." Rate hikes continued in Europe as well. The Bank of England (BOE) surprised markets with a big step (a 0.5 percentage point increase in the base rate) for the first time in four months since February, due to inflation concerns. The Swiss and Norwegian central banks also raised their benchmark rates by 0.25 percentage points and 0.5 percentage points, respectively, on the same day.

Mark Chandler, Global Chief Market Strategist at BMO Global, pointed out that "the main cause of the yen's weakness is the interest rate differential." Investors buying dollars at the end of Q2 this year and companies engaging in currency hedging also pulled the yen down.

The weak yen is expected to continue as long as Japan's monetary policy stance does not change. Goldman Sachs forecasts the yen-dollar exchange rate to surpass the 145 yen level next month. Bloomberg reported that even if the 145 yen level is breached, foreign exchange traders are unlikely to be significantly shaken. This means the market is taking the continuation of the weak yen as a given.

The market is focusing on the BOJ's Monetary Policy Meeting. Goldman Sachs expects the BOJ to partially revise its monetary policy next month. Goldman Sachs stated, "We expect the BOJ to adjust its Yield Curve Control (YCC) policy at the Monetary Policy Meeting next month." However, they also predicted, "Unless the BOJ brings a more hawkish policy such as a rate hike to the table, the upside for the yen's value will be limited."

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