Yen surges after Fed cuts interest rates

Since mid-July, the Yen has appreciated 15% against the USD. Year-to-date, the Yen is slightly appreciating against the greenback.

The Yen will be in focus this week as the US Federal Reserve (FED) begins to cut interest rates and the Bank of Japan (BOJ) keeps its interest rate policy unchanged after its latest meeting.

Specifically, the Fed cut the overnight interest rate by 0.5 percentage points, more than the usual cut of 0.25 points per adjustment, citing greater confidence that inflation will continue to fall to the 2%/year target. The new interest rate is 4.75% - 5.00%, the lowest level expected by the market.

Bank of Japan keeps interest rates unchanged, Yen jumps. Photo: Reuters

Two days after the US Federal Reserve cut interest rates for the first time since the COVID-19 pandemic began, the Bank of Japan (BOJ) decided to keep rates unchanged and raise its consumption forecast, a signal of optimism among monetary policymakers that the economic recovery is holding firm and will allow for a rate hike in the coming months.

For a long time, the Bank of Japan has been an exception among major global central banks in maintaining ultra-loose monetary policy to bring inflation back to its 2% target thanks to rising wages.

According to Reuters, the Bank of Japan kept its short-term interest rate unchanged at 0.25% after a two-day monetary policy meeting, as expected by investors and experts.

“ Private consumption is on a slight upward trend, despite the impact of rising prices and other factors ,” the Bank of Japan said in a statement.

“ The BOJ’s more positive assessment of consumption suggests the agency is increasingly confident that things are moving in the right direction, with rising wages pushing up household income and spending, ” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.

The Bank of Japan raised interest rates for the first time since 2007 in March. The central bank followed that up with a second rate hike in July, signaling that more rate hikes could be on the way. The move caught investors by surprise and sent markets into turmoil amid fears of a U.S. recession.

As a result, many investors have had to withdraw from the carry trade strategy, which involves borrowing Yen to invest in higher-yielding assets abroad. This reaction has pushed the value of the Yen higher.

According to Bloomberg, the fluctuation of the exchange rate between USD and Yen in the past 3 months was about 12 points, the highest level since March last year, while the fluctuation in the past 1 month was 15 points, the highest since January last year.

Experts say that with the current high level of speculation on the Yen's appreciation, the exchange rate volatility of this currency is likely to remain higher and longer.

According to the Yomiuri newspaper, if the interest rate gap between Japan and the US narrows, the Yen is likely to appreciate further against the USD, causing export-related stock prices to fall due to a selling trend.

Still, about 70% of economists surveyed by Bloomberg expect the Bank of Japan to raise interest rates again in December. Capital Economics predicts the bank’s next rate hike will come in October 2024, when inflation is likely to remain near its 2% target until early 2025.

Source: https://congthuong.vn/dong-yen-tang-manh-sau-khi-fed-cat-giam-lai-suat-347260.html