[Click eStock] "Yen Unlikely to Experience Trend Rebound for the Time Being"

Korea Investment & Securities forecasted on the 30th that it would be difficult to expect a trend reversal of the yen in the near term.

[Image source=Reuters Yonhap News]

The Bank of Japan (BOJ) reaffirmed through its April monetary policy meeting, which ended on the 26th, that it will continue its accommodative monetary policy. It also drew a line by stating that the exchange rate is not a direct target of monetary policy in response to the recent sharp depreciation of the yen. Furthermore, it did not rule out the possibility of a prolonged yen weakness and expressed skepticism about whether the yen's depreciation would lead to a sustained rise in prices due to increased import costs.

Ultimately, the yen-dollar exchange rate, which had been stagnant around 155 yen before the meeting, surpassed 158 yen as the U.S. March Personal Consumption Expenditures (PCE) inflation exceeded market expectations. This is the highest level since 1990.

Moon Da-woon, a researcher at Korea Investment & Securities, analyzed, "The BOJ seems to be focusing more on medium- to long-term inflation rather than short-term yen weakness," adding, "Given the current economic outlook and the BOJ’s tolerance of some yen depreciation, it is difficult to expect a trend reversal of the yen in the near term."

Additionally, the potential for further increases in the dollar index remains as expectations for a Federal Reserve (Fed) rate cut in the second quarter are being adjusted, which is another factor that could drive the yen-dollar exchange rate higher. Researcher Moon stated, "With strong upward pressure on the yen-dollar exchange rate expected through the second quarter, it will be difficult to expect a trend reversal of the yen even if there is some actual intervention by authorities until a fundamental phase supporting yen strength is established."

He continued, "However, as the year-end approaches, the dollar index is expected to decline, and the interest rate differential between the U.S. and Japan will gradually narrow, which will reverse some of the yen-dollar gains," adding, "If the BOJ maintains its accommodative stance until the end of the year and then gains confidence in inflation to begin raising rates, the yen will attempt a gradual rebound."