BENGALURU (Reuters) – Japan’s yen will recoup only a 3rd of its big losses against the dollar in the approaching yr because the policy gap between the ultra-hawkish U.S. Federal Reserve and the extremely dovish Bank of Japan is about to widen further, a Reuters poll found.
The policy divergence has battered the currency. It has lost over a fifth of its value this yr and hit a 24-year low of 146/dollar recently, so authorities intervened within the foreign exchange marketplace for the primary time since 1998 last month, spending 2.8 trillion yen.
Despite the intervention and expectations of more to come back, the yen’s weakness isn’t over yet as BOJ Governor Haruhiko Kuroda is unlikely to reverse his long-held pledge to maintain policy ultra-loose anytime soon.
The currency, the worst performer amongst its G10 peers, will trade around the present 144 versus the U.S. dollar at year-end, in line with FX strategists in a Reuters Sept. 30-Oct. 5 poll.
If realised, the yearly lack of greater than 20% could be the largest since 1970.
“USD/JPY’s uptrend unlikely to reverse because it is supported by U.S.-Japan policy gap and balance of payment deficit, while intervention was unilateral,” said Shusuke Yamada, FX strategist at Bank of America Securities.
“The Ministry of Finance trying to administer FX volume may suggest the BOJ not yet under pressure from the federal government to switch policy in response to weak yen.”
This yr’s rise in U.S. Treasury yields has put upward pressure on benchmark 10-year JGB yields leading the BOJ, which stays an outlier amongst global central banks, to go for large bond-buying to guard its de facto yield cap that fuelled the yen’s slide.
Core consumer inflation in Tokyo was its highest since 2014 in September and is a number one indicator of nationwide price rises. Meaning inflation is prone to stay above the central bank’s 2% goal within the near future, potentially making it harder for the BOJ to justify its ultra-easy policy.
Meanwhile, the Federal Reserve, which delivered its third straight 75 basis points hike last month, was expected to proceed with aggressive rate hikes, paving the best way for the U.S. dollar to stay strong.
Although the yen, until recently a shelter for investors during financial market turmoil, was predicted to achieve around 7% to trade at 135 against the dollar over the approaching yr it might be only a 3rd of this yr’s losses of over 20%.
Also, nearly a 3rd, 18 of 60 strategists predicted the currency to trade above the 24-year low of 145.89/$ sooner or later in the subsequent yr.
“The determination of the BOJ to keep up its ultra-loose monetary stance through yield curve control has been a transparent signal for selling the yen,” noted Derek Halpenny, head of research at MUFG.
“It is difficult to see a turn in USD/JPY now even after intervention by the MoF. The Fed and global central banks have more tightening to do while the BOJ does nothing but ease.”
(For other stories from the October Reuters foreign exchange poll:)
(Reporting by Indradip Ghosh; Polling by Prerana Bhat, Vijayalakshmi Srinivasan and Maneesh Kumar; editing by Jonathan Oatis)
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