Weak yen is the key to a turnaround in the Bank of Japan’s policy

Japanese business leaders are feeling much more optimistic about the recent decline in the yen compared to last year’s collapse due to the Bank of Japan’s currency intervention, according to Bloomberg. The yen is currently at an almost 8-month low against the dollar and a 15-year low against the euro.

Last year, Japan spent $65 billion on direct yen purchases in the market to reduce its 30-year low against the dollar.

One key factor for this optimism is the perception of central banks that the global rate hike cycle is more likely coming to an end than just beginning. This viewpoint has helped alleviate concerns about the yen’s free fall, even though it remains uncertain whether the US Federal Reserve will stop raising interest rates.

While an extended period of moderate yen weakness may seemingly lay the groundwork for long-term strengthening of the currency, this will depend on whether the Bank of Japan can achieve its inflation reduction targets and initiate a turnaround in its-loose monetary policy.

The weakness of the yen has had a positive impact on exporters, and the Japanese stock market has reached a 33-year high.

Analysts are confident that the pressure on the yen will not intensify. The yen does not currently have the same downward momentum as last year. Japan’s monetary policy, with its ultra-low interest rates aimed at boosting prices, contrasts sharply with the US, where the Federal Reserve significantly raised rates to cool down prices. All of this has pushed the yen down since the Fed began its tightening campaign in early year. The growing trade deficit in Japan, as commodity prices rise, has only worsened its decline.

Japan is paying more attention to the pace of depreciation rather than a specific target. In September, the yen approached 146 and 152 in October, but this year its volatility is much lower.