Yen bounces off 32-year lows on hopes of slower Fed rate hikes

The Japanese yen has rebounded from 32-year lows amid speculation that the US Federal Reserve will slow rate hikes, raising hopes among some analysts that a period of historic weakness is ending.

Over the past three weeks, the yen has risen to about 139 yen from 151.94 yen against the dollar, with most of these moves occurring during US market hours as investors scrutinize signals from the Federal Reserve that it may be slowing the pace of future rate hikes .

The yen’s sharp fall in recent months has sparked alarm in Japan as rising bills for imported goods and groceries caused the economy to contract for the first time in a year in the July-September quarter. The government recently announced a $200 billion spending package to ease the impact of rising cost of living on households.

But FX analysts and economists said despite significant efforts by Japanese authorities to support the yen, with around 9 trillion yen ($64 billion) worth of interventions since September, the currency’s fate has been dictated by the Fed and the dollar.

Takahide Kiuchi, executive economist at Nomura Research Institute, said it would be premature to call the end of the dollar’s strong trend until the Fed has actually begun a 0.75 percentage point downward move that the Federal Reserve has made at each meeting since have performed June.

A cooler-than-expected US inflation rate for October has helped stoke some optimism that the Fed will start to slow the pace of monetary tightening. Kiuchi, who was also a former board member of the Bank of Japan, said that a turning point for the yen is near: “I think we are entering the final phase or chapter of the yen’s historic weakening. This is the beginning of the end for the weaker yen.”

Yujiro Goto, chief FX strategist at Nomura Securities, said that despite what appears to be the yen’s definitive recovery over the past few days, investors have remained nervous as they look to end the sell-off.

In the coming weeks ahead of the mid-December Fed meeting, it’s possible the yen could slip back towards ¥145 against the dollar, Goto said, although the likelihood of it falling back below the ¥150 level is still higher. high is now decreased.

“Moreover, I think the current account balance is recovering due to the reopening of the border and the return of tourists, and the oil price also seems to have peaked, so it looks like the biggest yen sell-off is probably behind us. If we have a pivot from the Fed, that would cause some dollars to be sold globally,” Goto said.

Stockbrokers said clients had recently described a strong attraction to the now extraordinarily cheap-looking Japanese stocks, but held back from buying while there was a risk the yen could fall further.

However, others do not rule out another fall. Shusuke Yamada, FX and rates strategist at Bank of America, said the market needs to see more evidence of a slowdown in US inflation before declaring a dollar top.

“The labor market is still tight and wage increases are strong. For the dollar to peak and move lower against the yen, more evidence will be needed,” he said, adding that the corporate sector was still basically selling pressure on the yen while Japan remained in a trade deficit.

https://www.ft.com/content/f818a722-7cde-44ec-9836-10c82a049096 Yen bounces off 32-year lows on hopes of slower Fed rate hikes

Adam Bradshaw

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