As one of the world’s worst-performing major currencies in 2022, the yen is staging a comeback, rising strongly to a seven-month high against the U.S. dollar on Friday (13th), in addition to the Bank of Japan’s (BOJ) possible adjustment next week. In addition to the expected support of policy, analysts also pointed to other potential drivers.
Chris Turner, head of global markets at ING, pointed out that the US inflation data released on Thursday (12th) was in line with expectations, which led the currency market back to the main event, which is a possible major change in Bank of Japan policy and a lot of downside for the dollar against the yen .
Following Thursday’s (12th) single-day surge of 2.4%, the yen rose by more than 1% against the dollar on Friday, driving this week’s increase to more than 3%. The yen has rebounded about 16 percent since breaking through the 150 mark in October last year.
Meanwhile, the ICE U.S. Dollar Index (DXY) has struggled this year, having retreated 10.8 percent from a 20-year high hit in October. Marc Chandler, market strategist at Bannockburn Global Forex, added that DXY has given up nearly half of its gains since bottoming out in June 2021.
Chandler said the yen led gains against the dollar on speculation the Bank of Japan would abandon its ultra-loose monetary policy as soon as next week. The BOJ’s move last month to widen the range in which 10-year government bond yields fluctuate was seen as a prelude to an imminent shift in monetary policy, even after Bank of Japan Governor Haruhiko Kuroda denied it.
Other potential drivers
While the prospect of a policy shift at the Bank of Japan is the main driver of the yen’s rise, Steven Barrow, head of G10 strategy at Standard Bank, sees other potential bullish potential.
A recovery in China should help lift market sentiment in Asia, which in turn supports the yen, he said, adding that developments in the war in Ukraine, which broke out last year and pushed up the cost of energy imports and left Japan suffering from terms of trade, were also a big driver. ) shock, if the conflict does not expand further, it is expected to bring support to the yen.
The terms of trade is an index used to measure the profitability of a country’s exports relative to imports, reflecting a country’s foreign trade status.
Terms-of-trade shocks tend to lead to weaker currencies, Barrow said, not only in the yen, but also in other major energy-importing currencies, such as the U.K. and the euro zone, where terms-of-trade reversals, if energy prices extend recent declines, could lead to weaker currencies. The dollar should appreciate.
Standard Bank predicts that the yen is expected to rise to 120 yen to the dollar this year.
Still, Kit Juckes, a strategist at Société Générale, said that while next week’s BOJ meeting is in the spotlight, the BOJ could also do nothing, with a review of yield curve control policy likely to be announced, or possibly Won’t.