"Yen-Dollar Exchange Rate, Below 140 Yen by Year-End? Well..."

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Recently, the yen-dollar exchange rate surpassed 150 yen, and there are forecasts that it will be difficult for it to fall below 140 yen within this year.

According to the International Finance Center on the 17th, major investment banks (IB) such as Nomura predict that the yen-dollar exchange rate will fall below 140 yen by the end of this year, but considering the Bank of Japan's (BOJ) cautious stance on monetary policy normalization, the likelihood is not high.

The International Finance Center explained this in a recent report titled "Evaluation and Outlook on the Recent Weakness of the Yen," stating, "The market expects a significant appreciation of the yen this year, but considering various domestic and international conditions, any future yen appreciation is likely to proceed gradually."

The yen's exchange rate against the US dollar has continued to rise since the beginning of the year, surpassing 150 yen again after three months. It surged significantly from 141.01 yen at the end of last year to 150.80 yen on the 13th, approaching the peak levels of 2022?2023.

The recent weakness of the yen is mainly due to reduced expectations for a shift in monetary policies between Japan and the United States. At the end of last year, the market expected the BOJ to start ending its negative interest rate policy as early as January, but these expectations have now been delayed by about two to three months.

Additionally, the retreat of expectations for an early rate cut by the Federal Reserve and the US January Consumer Price Index (CPI) exceeding market forecasts also had an impact.

Furthermore, considering the dovish remarks from key BOJ officials such as Governor Ueda and Deputy Governor Uchida, the future path and magnitude of interest rate hikes are likely to remain moderate.

Japanese investors' expansion of overseas investments has also contributed somewhat. Due to the newly implemented Small Investment Tax Exemption System (NISA) that took effect last month, residents made net investments of about 700 billion yen in overseas securities, accelerating the yen's weakness. The International Finance Center analyzes that if overseas investments by Japanese residents continue and become a structural factor in foreign exchange supply and demand, it could emerge as a main driver of the yen exchange rate.

According to the International Finance Center, 12 major IBs expect the yen exchange rate to enter the low 140 yen range in the second half of the year and fall below 140 yen by the end of the year, based on expectations of policy rate cuts by major central banks such as the US Federal Reserve and interest rate hikes by the BOJ.

However, the International Finance Center added, "As the strong dollar phase is expected to persist more strongly than initially anticipated and the BOJ's monetary policy transition is expected to proceed gradually, the extent of the yen's appreciation will not be as large as expected."

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