Japanese Yen Nears 152 Yen per Dollar... Yen Depreciation Accelerates Due to Yen Carry Trade

Dollar-Yen Value at 151.79 Yen
Close to Highest Level Since 1990
Yen Sold Amid Rising US Treasury Yields↑
Yen Carry Trade Also Triggers Yen Weakness

Due to the rise in U.S. Treasury yields, the value of the yen against the dollar surged to the high 151 yen range on the 13th, falling to its lowest level of the year. Some analysts predict that the yen's weakness will accelerate as yen carry trade transactions become more active amid rising U.S. Treasury yields.

[Image source=Reuters Yonhap News]

At 3:10 p.m. on the 13th in the Tokyo foreign exchange market, the dollar was trading at 151.79 yen. The yen-dollar exchange rate, which had been fluctuating slightly around 150 yen since the end of last month, has continued to weaken after surpassing 151 yen on the 9th. If the dollar-yen value exceeds last year's high of 151.942 yen and breaks through 152 yen, it will mark the lowest level in 33 years since 1990.

The widening interest rate gap between the U.S. and Japan, caused by the rise in the U.S. 10-year Treasury yield, has expanded investors' selling of the yen. The day before, Moody's Investors Service, a global credit rating agency in the U.S., downgraded the outlook for the U.S. long-term bond credit rating from "stable" to "negative," pushing the U.S. 10-year Treasury yield up by 0.54% from the previous trading day (4.628%) to 4.653%.

The rapid expansion of the short-term interest rate gap between the two countries has also been cited as a factor behind the yen's weakness due to active yen carry trades. Yen carry trade refers to borrowing the low-interest yen currency and using the funds to operate high-interest currencies. The short-term interest rate gap between Japan and the U.S., which determines the borrowing costs for yen and dollars, has exceeded 5%, leading to a sharp increase in investments exploiting the interest rate differential, according to the Nihon Keizai Shimbun.

Shinichiro Monda, a foreign exchange specialist at Barclays Securities, explained that behind the recent yen weakness are yen carry trade investors seeking profits by exploiting domestic and international interest rate differences. He said, "In addition to hedge funds, individual investors have recently been actively engaging in foreign exchange margin (FX) trading by taking advantage of the interest rate gap."

The U.S. Federal Reserve's (Fed) negative stance on early rate cuts is also invigorating yen carry trade investments. The market expects the Fed to keep rates unchanged at next month's FOMC meeting, but even after rate hikes end, it is anticipated that high rates will be maintained for some time. Furthermore, there are expectations that the dollar's value will shrink due to the Fed's rate freeze. Nihon Keizai explained, "If the dollar weakens, the attractiveness of yen carry trade transactions aiming for a 5% yield based on the U.S.-Japan interest rate gap will increase more than the profits from foreign exchange trading."

There are also forecasts that yen weakness will continue for several months even after the end of U.S. rate hikes. Nihon Keizai stated, "Yen carry trades will encourage yen selling, causing the link between U.S. rate hikes and yen weakness to become less clear. According to Goldman Sachs' forecast, yen weakness may further progress over the next few months, with the yen potentially falling to 155 yen per dollar."

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