"Japan's Ultra-Low Interest Rate Expected to Continue... Yen-Dollar Exchange Rate May Reach 170 Yen Next Year"

Japanese yen banknotes stored at the Hana Bank Counterfeit Response Center in Jung-gu, Seoul [Image source=Yonhap News]

As expectations grow that the Bank of Japan (BOJ) will maintain its ultra-low interest rate policy despite the severe depreciation of the yen, there is an analysis suggesting that the yen-dollar exchange rate could soar to 170 yen.

On the 25th (local time), the US CNBC broadcast introduced the forecast of Eisuke Sakakibara, former Vice Minister of Finance of Japan's Ministry of Finance (formerly the Ministry of the Treasury), who predicted that the yen's value could fall to 170 yen per dollar next year.

Sakakibara, who was responsible for Japan's foreign exchange policy in the 1990s and wielded significant influence in the global foreign exchange market, earned the nickname "Mr. Yen."

According to the broadcast, he said, "Now, the majority of business circles expect further depreciation of the yen," adding, "170 yen is comfortably within the range." As of the afternoon of the 26th, the yen is trading at around 147 yen per dollar.

In response to the rapid decline in the yen's value, Japanese authorities are estimated to have spent more than $57 billion (approximately 81.9 trillion won) over the past two months defending the exchange rate in the foreign exchange market.

However, Sakakibara stated that even if the authorities continue to intervene in the foreign exchange market to defend the yen's value, it will not have a significant effect, and the authorities are aware of this fact.

KT Lien of BK Asset Management also said, "The only time the Japanese authorities' intervention attempts were effective was when they intervened jointly with the other Group of Seven (G7) countries."

Nevertheless, the Bank of Japan is expected to maintain its ultra-low interest rate policy going forward. According to a Bloomberg survey of 49 economists, the BOJ is expected to keep the benchmark interest rate in negative territory at the monetary policy meeting scheduled for the 27th.

The BOJ's current short-term interest rate is -0.1%, and if it continues its monetary easing policy, the interest rate gap with the United States will widen further, increasing the likelihood of further depreciation of the yen. The US Federal Reserve (Fed) is expected to raise its benchmark interest rate by 0.75 percentage points at the Federal Open Market Committee (FOMC) regular meeting next month.

Accordingly, there is also speculation that the BOJ's purchases of Japanese government bonds may increase due to the rise in Japanese government bond yields.

Sakakibara predicted that the BOJ will start raising its benchmark interest rate only after the term of BOJ Governor Haruhiko Kuroda ends in April next year.

Masato Kanda, Vice Minister of Finance of Japan, told Bloomberg on the same day that US Treasury Secretary Janet Yellen recently expressed respect for Japan's government's "masked intervention" in the foreign exchange market.