"When Will the Yen Strengthen?" Japanese Financial Easing Maintained... Individual Investors 'On Edge'

BOJ Says "Need to Further Monitor Wage and Price Conditions"
Divergent ETF Returns Amid Prolonged Yen Weakness
"Dollar-Yen Exchange Rate Expected to Stay in Low 140s"

As the Bank of Japan (BOJ) decided to maintain its large-scale monetary easing policy, analysis suggests that a rebound in exchange-traded funds (ETFs) relying on expectations of a 'strong yen' will be difficult for the time being.

BOJ Maintains Monetary Easing Policy... Yen Weakness

On the 19th, the BOJ decided at its two-day Monetary Policy Meeting to keep the short-term interest rate at -0.1% and continue guiding the 10-year government bond yield, a long-term interest rate indicator, around 0%, thereby maintaining its large-scale monetary easing policy. The BOJ plans to monitor wage and price conditions further before fully implementing tightening measures such as interest rate hikes.

So far, the Japanese government has pursued a low-interest rate policy to stimulate the economy, a path different from other countries like the United States and South Korea, which raised rates to control inflation. As a result, the market expected that when the US and others begin cutting rates next year and Japan normalizes its rates, the interest rate gap would narrow, leading to a stronger yen. In fact, the dollar-yen exchange rate clearly showed yen depreciation, surpassing 150 yen in October, but recently it has fallen to the low 140 yen range. However, following the BOJ's decision to maintain its policy, the yen-dollar exchange rate, which was trading around 142 yen per dollar in the Tokyo foreign exchange market, rose intraday to the 144 yen range (yen weakening).

This prolonged 'yen depreciation' has led to mixed reactions among domestic investors in Japan-related ETFs. Mirae Asset Global Investments' 'TIGER Japan Yen Futures ETF,' which tracks the 'Yen Futures Index' based on the won-yen exchange rate, posted a year-to-date return of -5.09% as of the 18th. After the yen's value against the won fell below the 900 won level at the end of July, individual investors aiming for 'buying at the bottom' increased, but instead, it dropped further to the 800 won range last month. Contrary to expectations, investors did not benefit from the 'Yentech (yen financial technology)' effect.

On the other hand, individual investors who invested in ETFs tracking the Japanese stock market saw gains. ETFs tracking major Japanese stock indices, such as the Nikkei 225 and TOPIX, showed high returns year-to-date. Korea Investment Trust Management's 'Japan Nikkei 225 (H)' recorded a return of 29.92% during this period. 'TIGER Japan Nikkei 225' and Samsung Asset Management's 'KODEX Japan TOPIX 100' posted returns of 24.04% and 21.01%, respectively. This was due to expectations that the profits of leading Japanese companies, whose export competitiveness improved due to yen depreciation, would increase.

Negative Interest Rate Expected to End in First Half of Year... "Strong Yen Uncertain"

The market expects Japan's negative interest rate policy to end in the second quarter of next year. BOJ Governor Kazuo Ueda said at a press conference after the Monetary Policy Meeting, "We still need to observe whether the virtuous cycle of wages and prices is strengthening." Regarding this, Yoonjung Park, a researcher at NH Investment & Securities, said, "There were no hints about normalizing interest rate policy in this BOJ announcement. It will be difficult to change policy at least until April next year, as they want to confirm the results of wage negotiations (Shunto) between Japanese labor and management." The impact of the US Federal Reserve's monetary policy is also considered a variable.

However, even if policies change next year, there is a forecast that a strong yen may not appear immediately. Recently, the Korea Institute of Finance released its own report predicting that expectations for a strong yen will not significantly expand. Even if the BOJ pursues an exit strategy, it is necessary to consider the possibility that the monetary policy path will not change significantly in the medium term. The basic scenario mainly focuses on the Fed's monetary policy changes, and it is assessed that the BOJ's exit strategy signals will hardly change exchange rate forecasts significantly.

The average dollar-yen exchange rate forecast by 12 global investment banks (IBs) for the end of December next year is 139.33 yen. This implies that the exchange rate will remain around the 140 yen level for about a year. Sung-hwan Kim, a researcher at Shinhan Investment Corp., said, "The Japanese stock market still needs more yen depreciation," adding, "Even though wages and consumer sentiment have improved, domestic demand is still weak. Export volumes have not increased over the past 10 years." He explained, "If the yen strengthens, export industries will inevitably be hit. The spread of warmth to domestic demand or the time to overcome the lost 30 years will be delayed."

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