Will It Rise Again Next Year? Jefferies Issues 'Warning' on Yen Investment

"Just Hope for US Rate Hike and Japan Rate Cut"

Amid forecasts that the Japanese yen will continue to rise next year, global investment bank (IB) Jefferies has issued a caution against overly optimistic views.

According to Bloomberg on the 26th (local time), Brad Bechtel, head of Jefferies Global Foreign Exchange, predicted that the yen's upward trend is nearly over. Although the yen has risen more than 6% from its November low, institutional investors have shown a pattern of becoming optimistic about the yen over the past year only for it to decline afterward.

[Image source=Yonhap News]

Bechtel stated, "Based on hopes for a cycle of the U.S. Federal Reserve (Fed) cutting interest rates and the Bank of Japan (BOJ) raising rates, the market is trying to believe that the yen will be strong next year."

Views on the current currency market are divided. As doubts grow over whether the BOJ will end its negative interest rate policy, the Fed is expected to begin cutting policy rates as early as the first quarter of next year. If the U.S. and others start lowering rates while Japan raises them, the interest rate differential will narrow, causing the yen's value to rise.

However, after the BOJ released a summary of the minutes from its December monetary policy meeting stating it will not rush to reduce stimulus measures, the yen weakened. Earlier, on the 25th, BOJ Governor Kazuo Ueda attended an event hosted by Keidanren (Japan Business Federation) and said, "If the virtuous cycle of wages and prices strengthens and the annual 2% price stability target is likely to be achieved steadily, we will consider changing monetary policy."

According to data released by the U.S. Commodity Futures Trading Commission on the 19th, asset managers have turned to buying yen for the first time in seven months since May. However, Bechtel said regarding these investors' long positions, "This does not mean the yen rally will continue," adding, "It could be a sign that the yen has reached a peak, as seen in January and March this year."

In fact, when asset managers bought yen from mid-January to the end of February this year, the yen weakened by 2% against the dollar. When they bet on yen strength from March to May, the yen's value fell by 0.2%.

The yen has fallen 8% against the dollar this year, the largest decline among 10 major currencies. According to Investing.com, the USD/JPY exchange rate was 142.62 yen around 3 p.m. that day.