The depreciation of the yen in the NY market at the beginning of the week has been steadily increasing in the Tokyo market today. It hit the 128 yen level in the afternoon, which is a significant depreciation of the yen from the 126 yen level in the Tokyo market yesterday. No new material has been released. Yesterday, the Bank of Japan’s governor, Kuroda, said, “The rapid depreciation of the yen is a minus.” However, there is a history that no noticeable yen buying reaction was seen.
Behind the depreciation of the yen is the strong monetary tightening stance of the US financial authorities. It seems that some members have mentioned a significant rate hike of 0.75%, let alone 0.5%. The protracted Ukrainian war has led to a general rise in inflation through soaring energy prices.
On the other hand, the Bank of Japan adheres to YCC. In addition, it has announced an increase in bond purchases, an increase in the number of bonds, and the conversion to ultra-long-term bonds. The outlook for widening interest rate differentials between Japan and the United States is only increasing. The government is worried that the high prices at the moment are dissatisfied with the people, conscious of the upper house election in the summer. Government sources have actively made statements about the depreciation of the yen, but the reaction to the yen has been sluggish. And the Governor of the Bank of Japan has begun to make remarks by mouth.
It is easy for funds to get on the depreciation of the yen. With the yen’s depreciation fundamentals in place, it seems that they are making speculative moves. When the depreciation of the yen is fully extended, it is expected that there will be a big swing back, but the timing and level can only be known by retrofitting.
If there is a change in the trend of yen depreciation for the time being, it seems that it will be limited to the case where the BOJ demonstrates flexibility. What is often said in the market is the expansion of the upper limit of government bond yields in YCC. In a situation where the inflation target of 2% is achieved and there is a cause for economic support, it is difficult to touch on exit strategies such as normalizing interest rates.
We believe that the yen will continue to depreciate and USDJPY will rise to the 130-yen level. Today, we are continuing to buy AUDJPY due to the depreciation of the yen.
