In June of this year, the yen fell to its lowest level since 1986, prompting intervention by the Bank of Japan. Following a rate hike by the central bank, the yen strengthened, with the USD/JPY exchange rate dropping 12% within three weeks.
Despite increased volatility in the yen, Sumitomo Mitsui Banking Corporation economist Ryota Abe stated that due to the yen's "predictability," its status as a safe-haven currency remains intact. He explained: "Considering Japan is still the world's largest external creditor with a continuous current account surplus, we still regard the yen as a 'safe haven.'"
Hugh Chung, Chief Investment Advisor at Endowment Wealth and Fund Platform, believes the yen remains sensitive to U.S. interest rates and continues to be a safe-haven asset during recession fears.
Abe attributes the high volatility of the yen primarily to changes in the external market environment rather than domestic factors. If the volatility were triggered by decisions of the Bank of Japan, market reactions would be more intense. He added that the yen "should have rebounded immediately after the central bank's decision, but that was not the case."
Abe predicts that this year the USD/JPY will fluctuate around 145, with future movements depending on the pace of interest rate cuts by the Federal Reserve. He anticipates that the USD/JPY could fall to 138 or even 130 by the end of 2025.
This volatility may be related to changes in the Bank of Japan's monetary policy, but Abe thinks it is unlikely that the central bank will raise rates anytime soon. However, he has not entirely ruled out this possibility, as GDP data for the second quarter shows strong recovery in private consumption, which could support a rate hike.
Hugh Chung, on the other hand, believes that with the unwinding of some "carry trades" and reduced uncertainty about the central bank's actions, the yen's volatility may have peaked this year.
Both experts agree that the future trajectory of the yen will largely depend on the growth prospects of the U.S. economy.
As of 9:22 AM Beijing time on August 26, the USD/JPY was reported at 143.59/60.
