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Yen’s fall complicates timing of Bank of Japan rate hike Provider FX678

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Yen’s fall complicates timing of Bank of Japan rate hike Provider FX678

The Japanese yen’s fall against the US dollar has raised concerns about the timing of a potential rate hike by the Bank of Japan. As the yen hit around 150 against the dollar, it has complicated matters for the central bank, which has been eyeing the perfect time to raise interest rates for the first time since 2007.

BOJ Governor Kazuo Ueda is expected to raise policy rates in March or April, but some economists believe an earlier rate hike could provide quicker support for the yen. However, the BOJ is reluctant to give the impression that it is simply reacting to market moves.

Yuichi Kodama, chief economist at Meiji Yasuda Research Institute, stated, “There is no doubt that the yen has become a more important factor in ending negative interest rates. I wouldn’t rule out a rate hike in March, but my base case remains April, as long as the yen stays around this level.”

The recent U.S. inflation data, which exceeded expectations, led to a strengthening of the dollar against the yen, reducing expectations that the Federal Reserve will cut interest rates sooner. This prompted Japan’s deputy finance minister for international affairs, Masato Kanda, to hint at possible intervention in the currency market. Japan had intervened in the foreign exchange market three times in 2022 when the yen fell to its lowest level in decades.

The yen’s fall this year has been significant, with the currency declining about 6.4% against the dollar, the largest decline among major currencies. Takeshi Minami, chief economist at Norinchukin Research Institute, believes that currency trends may change direction later this year as the Federal Reserve moves toward rate cuts and the Bank of Japan hikes.

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Despite the pressure on the yen, the Bank of Japan has made adjustments to its yield curve control program, reducing the suppression of bond yields, which is believed to be a move aimed at reducing pressure on the currency.

The timing of a potential rate hike by the Bank of Japan remains uncertain, as the fall of the yen against the dollar creates complications for the central bank. As the BOJ continues to monitor the situation, analysts and economists are closely watching for any indications of a shift in policy in response to the currency movements.

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