The Japanese yen fell after hitting a high last week, with the US dollar rising 0.8% against the yen to 153.80. The yen peaked at 154.70 earlier in the week, but the decline came amid growing fears of a possible intervention by the Bank of Japan to protect the currency. On November 6, the yen hit 154.68, its highest level since July, reflecting the weakness of the Japanese currency over the recent period. This appreciation of the dollar coincided with growing uncertainty in Japanese monetary policy.
According to a summary of views from the Bank of Japan’s monetary policy meeting in October, there was divergence among committee members on the timing of the rate hike. Some members noted that there are doubts about raising interest rates at the moment, due to political challenges and uncertainty about the sustainability of Japan’s economic recovery. These statements Boosted pressure on the yen and contributed to pushing the U.S. dollar high against the Japanese currency.
Interest rate expectations are crucial for the currency market, especially in the case of the yen and the US dollar. While most of the world’s major central banks are pursuing more loose monetary policies to encourage economic growth, the Bank of Japan is still adopting an ultra-accommodative policy. It is this divergence in monetary policy between the US and Japanese central banks that is fueling the volatility of the dollar and the yen. At the same time, despite conservative statements from the Bank of Japan, there is a need for constant monitoring of economic reactions, as any intervention by the Bank of Japan to reduce currency pressures could lead to additional volatility in financial markets.
The impact of US monetary policy on dollar against yen
US monetary policy significantly affects the movement of the US dollar against the Japanese yen, as the decisions of the US Central Bank (Federal Reserve) play a crucial role in determining currency trends in global markets. The US dollar, as the global reserve currency, is directly affected by interest rate changes and economic policies adopted by the Federal Reserve, which aim to achieve price stability and economic growth. These policies are the main driver of the dollar’s movement, especially when there are significant differences.
Between US monetary policy and the policy of the Bank of Japan. When the Federal Reserve raises interest rates, the yield on dollar-denominated assets such as US bonds increases, making the dollar more attractive to investors. In this context, the dollar could rise against the yen, as investors seek to take advantage of the high yields in the United States. The rise in U.S. interest rates also encourages the flow of money into the U.S. markets, increasing demand for the dollar, and leading to an appreciation of its value compared to other currencies, including the Japanese yen.
Conversely, when the Federal Reserve adopts accommodative monetary policy, such as lowering interest rates or implementing quantitative easing programs, the dollar generally weakens. Lower interest rates reduce returns on dollar-denominated assets, prompting investors to look for better investment opportunities elsewhere. In this case, the dollar may weaken against the yen, especially if Japanese monetary policy is tighter or if interest rates in Japan are stable or relatively high. Moreover, the economic outlook plays a large role in determining the movement of the dollar against the yen.
Factors affecting the Japanese yen exchange rate
The Japanese yen exchange rate is influenced by a number of economic and political factors that affect its value in global financial markets. As one of the world’s major currencies, the yen is sensitive to many factors, including monetary policies, economic outlook, and geopolitical developments. One of the most important factors affecting the yen’s exchange rate is the monetary policy of the Bank of Japan. The Bank of Japan is a central bank that pursues a very accommodative monetary policy, including maintaining very low or even negative interest rates. These policies aim to stimulate economic growth and increase inflation, but at the same time lead to a weaker yen compared to other currencies. When interest rates are kept low in Japan, the return on JPY-denominated assets decreases, prompting investors to look for investment opportunities with higher returns elsewhere such as the United States or Eurozone.
In addition, interest rates in other countries play a big role in determining the value of the yen. For example, if the US Federal Reserve decides to raise interest rates, it could increase the demand for the US dollar due to higher yields, weakening the Japanese yen. The opposite is also true: when other major central banks cut interest rates or adopt similar accommodative policies, the yen may find itself in a relatively strong position. Economic outlook is also an influential factor in determining the yen’s exchange rate. When Japan’s economy is in a strong growth state, with productivity improving and demand for goods and services rising, this may support the yen’s value.
