End of Yen Weakness?... Yen Hits 120 Level After Six Months

Yen Value Rises Amid Growing Expectations of Interest Rate Hike

[Image source=Yonhap News]

[Asia Economy Reporter Lee Ji-eun] The value of the yen, which had fallen to its lowest level in 32 years by surpassing 150 yen per dollar last year, has risen again and settled in the 120 yen range after six months. As a result, the market is anticipating the end of the yen depreciation trend that had deepened since April last year.

According to Bloomberg on the 3rd, the yen briefly reached 129.54 yen per dollar during trading in the Tokyo foreign exchange market. This is the first time the yen exchange rate has reached the 120 yen range since June.

The yen turned bullish after the Bank of Japan (BOJ) unexpectedly raised the allowable fluctuation range of long-term interest rates on the 20th of last month, starting to trade below the 130 yen level. Nihon Keizai analyzed that investors perceived this BOJ policy as a de facto interest rate hike, triggering yen buying.

The market expects that the BOJ is likely to shift to a tightening stance starting with this monetary policy adjustment. Bloomberg reported, "Investors expect the BOJ to reconsider its negative interest rate policy, which has been maintained since 2016, after the term of BOJ Governor Haruhiko Kuroda expires in April." This is seen as a measure to curb the recent inflation surge. Japan's consumer price index for November recorded 3.7%, the highest in 40 years and 11 months. 3.6% far exceeds the BOJ's inflation target of 2%.

Rajiv de Mello, Global Macro Portfolio Manager at Swiss Gamma Asset Management, told Bloomberg, "Although the yen has recently entered a strong phase, it is still undervalued," adding, "Since the negative interest rate is expected to end in April this year, obstacles preventing the yen's appreciation are likely to decrease."

Meanwhile, earlier last year, the yen exchange rate remained in the 115 yen range, but after the U.S. Federal Reserve (Fed) raised the benchmark interest rate for the first time in three years, it broke the lowest level recorded in 2015 (125.86) in April of the same year. Subsequently, as the long-term interest rate gap between the U.S. and Japan widened, the yen's value fell to the 150 yen range in October, hitting the lowest level in 32 years. In response, the BOJ intervened in the market by selling dollars and buying yen, and the yen exchange rate, which had been soaring daily, began to decline in November. According to NHK, the Japanese government reportedly injected funds amounting to 9 trillion yen (88.1397 trillion won) from September to October to defend the exchange rate.