This week, the yen has risen significantly against the dollar, reaching its highest point in nearly a month at one point on the 27th in the New York forex market, reflecting heightened market risk aversion. During overnight trading, the yen briefly broke through the 151 yen per dollar barrier, and compared to last week, it rose by more than 2.8% at one point this week. This performance put pressure on the stock prices of Japanese export companies, leading to a decline in the Nikkei 225 index at today's opening.
The primary factor driving the yen's rebound is the market's expectation of narrowing US-Japan interest rate differentials. According to the minutes from the Federal Reserve's November policy meeting, the Fed might cut rates further next month. At the same time, Bank of Japan Governor Kazuo Ueda reiterated last week that if economic and inflation conditions permit, the central bank will continue to raise policy rates. This suggests that if the Fed cuts rates and the BOJ raises them, the US-Japan interest rate gap will further narrow, boosting the yen.
Another significant driving factor is the heightened international trade tensions. This week, US President-elect Trump once again mentioned the possibility of imposing tariffs on several trade partners. This statement has raised market concerns about the global economic outlook, prompting investors to sell dollars and buy yen driven by risk-aversion sentiment, further supporting the yen's rise.
Analysts point out that if future international trade uncertainties continue to increase, coupled with changes in monetary policy, the yen could appreciate further. A forecast report released by a Japanese think tank indicates that in an extreme scenario, the yen exchange rate could reach 120 yen per dollar in the first half of 2024, with the lowest possibly hitting 180 yen per dollar.
The market is currently closely monitoring the future policy directions of the Federal Reserve and the Bank of Japan. If the divergence in monetary policy between the two countries intensifies next month, the yen-dollar exchange rate might experience greater fluctuations.
