35dhh.top.

A survey indicates that over half of analysts believe the Japanese yen will outperform the US dollar and the euro this year, but...

The yen has once again ranked at the bottom among the currencies of the G10 countries for the third consecutive year, and Japan remains the only country that continues to maintain a negative interest rate policy.

Measured by the Nikkei Currency Index, the yen's performance in 2023 was inferior to that of the US dollar, the euro, and other G10 currencies.

According to data released by the Bank of Japan, the yen's exchange rate against the US dollar was around 141.40 last Friday evening, down about 7% from the end of 2022. Additionally, the average exchange rate of the yen last year was 140, the lowest level since 1990.

The Swiss franc became the strongest performing G10 currency for the second consecutive year, followed by the British pound and the euro. The currencies of Sweden, Australia, Canada, New Zealand, and Norway also ranked relatively high.

The yen's exchange rate against the US dollar reached its annual high in January 2023, hitting 127.2, as the market speculated that the Bank of Japan would further adjust its ultra-loose monetary policy. However, the Bank of Japan ultimately decided to maintain the policy unchanged, shifting the market's focus to the Federal Reserve.

Advertisement

Before last fall, due to the resilience of the US economy, the market generally expected the Federal Reserve to maintain a "higher for longer" interest rate stance. Moreover, concerns about the fiscal health of the United States increased the upward pressure on US Treasury yields.

The benchmark 10-year US Treasury yield once exceeded 5% in October last year, the highest level in 16 years. As the interest rate differential between Japan and the United States widened, in November last year, the yen's exchange rate against the US dollar approached 152, setting a new low in 33 years. Akira Moroga, Chief Market Strategist at Aozora Bank, stated:

"This is an active period for yen carry trades, which means borrowing low-interest yen to invest in currencies with higher yields, pushing up the US dollar."

Taking into account inflation, trade volume, and other factors, the yen's real effective exchange rate fell to a historical low in August last year, the last time being in August 1970 when the fixed exchange rate of the yen against the US dollar was still 360 yen per US dollar.In 2024, the market anticipates that the Federal Reserve and the European Central Bank will lower interest rates, while the Bank of Japan may conclude its zero-interest-rate policy. Consequently, most market observers believe that the interest rate differential between Japan and the United States will narrow, leading to a moderate appreciation of the Japanese yen. A quick survey of analysts shows that 59% of them think that the yen will outperform the US dollar and the euro in 2024.

However, the majority of forecasts indicate that the yen's exchange rate against the US dollar is likely to remain below the 110 level that was present before the Federal Reserve initiated its rate-hiking cycle in March 2022. Daisaku Ueno, Chief Currency Strategist at Mitsubishi UFJ Morgan Stanley Securities, stated:

"The yen will only appreciate when speculative traders buy back the yen they sold in carry trades as the Federal Reserve lowers interest rates."