The Japanese yen surges to a seven-month high as traders bet the Bank of Japan will finally give up on ultraloose monetary policy.
The Japanese yen, among the world’s worst-performing major currencies in 2022, roared back to a seven-month high versus a now-reeling U.S. dollar on Friday, as traders bet the Bank of Japan will finally join other major central banks in tightening monetary policy.The Japanese yen, among the world’s worst-performing major currencies in 2022, roared back to a seven-month high versus a now-reeling U.S.
The dollar, which roared higher in 2022 as the Federal Reserve led a breakneck series of aggressive rate hikes in its effort to get a grip on inflation, has been in retreat since fall. The ICE U.S. Dollar Index DXY , a measure of the currency against a basket of six major rivals, is down 10.8% from a 20-year high set in October. What’s more, the index has retraced half of what it gained since bottoming on Jan.
Since then, the BOJ has faced more intense pressure to tighten policy. It’s decision in December allow the yield on the 10-year Japanese government bond TMBMKJP-10Y to trade as high as 0.5% versus a previous cap of 0.25% has emboldened traders to test the central bank. “Economic recovery in China should prop up sentiment in Asia and should give the yen further support,” he wrote.
The scope for yen strength is probably greatest versus the dollar, rather than currencies that could see their own terms of trade boost, like the euro EURJPY and the British pound GBPJPY , the strategist said, noting that Standard Bank’s 2023 yen target is ¥120.“Looking ahead at next week, the BOJ meeting on Jan. 18 will attract attention, though it’s quite likely it will result in inaction,” said Kit Juckes, global macro strategist at Société Générale, in a Friday note.
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