Global 'Big Players' Focus on Yen Value... This Week Is a Turning Point

US-Japan Monetary Policy Meeting Scheduled This Week
Attention on Message Suggesting Narrowing Interest Rate Gap
Turning Point Dividing Yen Value Between Upside and Downside

As the value of the Japanese yen has recently risen sharply in an unusual manner, investors worldwide are closely watching the upcoming monetary policy meetings of the central banks of the United States and Japan scheduled for this week.

At these monetary policy meetings, a country's benchmark interest rate is determined. If the message is emphasized through these two events that the high interest rate differential between the US and Japan, which is a major cause of the yen's weakness, will decrease, there is a high possibility that global asset markets such as world stock markets, emerging market currencies, gold, and Bitcoin will be significantly affected.

The Bank of Japan (BOJ), Japan's central bank, will hold a two-day monetary policy meeting until the 31st to discuss whether to raise the benchmark interest rate and plans to reduce the scale of government bond purchases.

Bloomberg News predicted a 29% chance that the BOJ will raise the benchmark interest rate once more this month following the increase in March. Additionally, the BOJ plans to somewhat reduce the monthly purchase of long-term government bonds worth 6 trillion yen to achieve the effect of raising long-term interest rates.

The US central bank, the Federal Reserve (Fed), will also hold the Federal Open Market Committee (FOMC) meeting on the 30th and 31st (local time). While an eighth consecutive interest rate hold is likely, there are speculations that the Fed may signal a rate cut in September.

The yen's value against the dollar, after peaking at 161.79 yen on the 11th, temporarily dropped to 151.94 yen on the 25th, showing signs of yen strength. This was influenced by the Japanese authorities intervening in the foreign exchange market to prevent yen weakness, along with rising expectations of interest rate hikes in Japan.

If the yen's strength continues, there is an analysis that major Japanese investors may withdraw overseas funds, causing fluctuations in global asset markets. Until now, they have earned profits through yen carry trades, borrowing low-interest yen to leverage investments in high-yield markets.

Chris Turner, a strategist at ING, recently stated in a memo, "The reduction of yen short positions is undoubtedly contributing to the global risk-off environment."

The yen's strength is expected to act as a factor that causes adjustments in various financial assets such as major countries' stock and bond markets, emerging market currencies, Bitcoin, and gold.

However, if the yen's value rises too sharply and the BOJ judges that there is no need to raise interest rates this month or if the scale of government bond purchase reductions is smaller than market expectations, the yen's value may weaken again.