Bloomberg: Japanese yen strengthens as central banks swap places

06 December 2022 204
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Source: Bloomberg

Author: Ruth Carson and Anya Andrianova

Article: Original article

Publication date: Tuesday, December 6, 2022

The major currency with the worst performance seems to be ready for an impressive turn in 2023, as its two major factors – a hawkish Federal Reserve and a dovish Bank of Japan – have swapped places, according to some investors’ opinion. 

As it was shown by Barclays Plc and Nomura Holdings Inc., the yen – a preferred short against the dollar for the most part of 2022 – might increase by more than 9% from the current levels next year. At the same time, Vontobel Asset Management AG suggests its fair value to be about 100 per dollar, which is 35% lower than the current level of the USD/JPY pair. State Street Global Markets forecasts a quick rebound as fears of aggressive monetary tightening in the U.S. are receding. Meanwhile, T. Rowe Price states there are some growth prospects due to more hawkish policy of the Bank of Japan.

Sébastien Page, head of global multi-asset at T. Rowe, which oversees $1.28 trillion in asset, suggests that a peak of the yen weakening against the dollar is near. According to his words, the Bank of Japan has a chance to surprise the market by turning to a slightly more aggressive policy and causing the currency to grow if the Fed finally takes a break from rapid hiking.

The sentiment has notably changed to be more bullish compared to September, when hedge funds couldn’t get enough of the yen shorting. That was a result of an ultra-loose monetary policy of the Bank of Japan. A growing gap in yields between the U.S. and Japan caused the yen to fall by as mush as 25% over the year, because of the U.S. aggressive rate hikes and Japan keeping its rates record low to boost the economy.

Forecast: the USD/JPY pair is expected to decline

This content is for informational purposes only and is not intended to be investing advice.

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