The yen hit its highest level since the year’s beginning in relation to the USD due to rising interest rates in Japan and less positive US economic statistics.
The price of the Japanese yen rose 2.3% versus the US dollar in the afternoon of August 5, reaching 142.2 JPY per USD. Since January, this is the highest level. The Japanese currency has been increasing since July, and it has been strengthening much more since last week.
Yen currency developments recently
The value of the yen rose by 8% against the US dollar in the last month. The US-Japan interest rate differential started to close as a result of actions taken by Japanese policymakers in the currency market. The Bank of Japan (BOJ) increased the reference interest rate from its prior range of 0-0.1% to around 0.25% on July 31, marking the second increase this year. Additionally, this institution made it clear that if the economy continued to grow as predicted, interest rates would be raised.
In the meanwhile, it is anticipated that in September, the US Federal Reserve (Fed) would lower interest rates. At its meeting in September, the US Federal Reserve (Fed) is expected by the market to lower interest rates by an additional 50 basis points, or 0.5%. “It seems excessive to me. Although not significantly, the US economy is slowing down, according to Masafumi Yamamoto, a currency analyst at Mizuho Securities, who spoke with Reuters.
Barclays analysts think that there is too much buying of the yen. Yamamoto, however, stated that technical charts indicate the yen would continue to rise in the near future.
The Yen is no longer ideal for “carry trade” operations
With Japan’s interest rates still at a level that is over two decades below average, the yen is a prime candidate for carry trade operations, or currency interest rate differential trading. This is the process of taking out a loan in a low-interest currency and selling it to purchase a higher-interest currency. After that, you can invest or save this money.
Russell Napier, co-founder of research company ERIC, stated on CNBC that “investors are under pressure to sell other assets to repay Japanese yen loans” as a result of the US and Europe starting to lower interest rates and Japan raising rates twice this year. In the past, this has led to a sell-off in the global stock and cryptocurrency markets and increased the value of the yen.
The market is impacted by several factors
Global financial markets are being impacted by several other variables in addition to the Japanese yen. According to data released this week, the US labor market did not perform as well in July as was anticipated. Additionally, the profit results of several US IT firms fell short of market expectations. The second-largest economy in the world, China, is also causing people to become more concerned.
The strength of the US dollar relative to a basket of major currencies is gauged by the Dollar Index, which is presently down 0.4%. The value of the Swiss franc rose by more than 1% Wednesday, reaching 0.84 francs for every US dollar. The euro rose by 0.2% as well. At the moment, one EUR is worth 1.09 USD.
