On Thursday (December 19th), the Bank of Japan decided with an 8-1 vote to maintain the policy rate at 0.25%, marking the third consecutive pause in rate hikes. In its policy statement, the bank stated that Japan's economic activity and prices still face high uncertainty, with the underlying CPI expected to gradually rise, but economic growth is projected to remain above potential levels. The central bank emphasized that it will closely monitor foreign exchange and market trends and their impact on the Japanese economy and prices.
Following the rate decision, the dollar against the yen soared more than 50 points, currently reported at 155.26, marking a near one-month high. Market expectations for the Bank of Japan to maintain an accommodative policy have driven a further weakening of the yen.
HSBC and Barclays Predict Continued Yen Depreciation
HSBC expects the yen's depreciation trend to continue, with the dollar-yen exchange rate potentially reaching 160 by the end of June 2025. HSBC believes that Japan's accommodative monetary policy environment will continue to suppress the yen, while strong economic growth and tightening monetary policy in the U.S. will drive further dollar appreciation.
Barclays shares a similar view. Barclays forecasts the yen will continue to depreciate in the short term, with the dollar-yen exchange rate possibly reaching 158 by the end of March 2025. The bank notes that the implementation of policies by the new U.S. administration will be relatively smooth, further strengthening the dollar's dominant position.
Market Impact and Outlook
With the Bank of Japan's accommodative monetary policy in stark contrast to the U.S.'s tightening policy, the downward pressure on the yen is intensifying. As the dollar-yen surpasses 155, the market anticipates further potential highs in the future. For investors, whether the Bank of Japan will adjust its policies to address yen depreciation will be a focal point. At the same time, international market concerns about Japan's economy and prices might bring additional volatility to the forex market.
In the coming months, the forex market will closely watch domestic economic data from Japan and further statements from the Bank of Japan. Investors should be mindful of the potential impact of the global economic environment and policy differences on exchange rate fluctuations.
