On November 13th, Amir Anvarzadeh from Asymmetric Advisors shares insights on Japan’s economic outlook and explores the Bank of Japan’s potential strategies to bolster the yen.
Key Takeaways:
Currency Impact: The Bank of Japan's (BOJ) recent decision to raise interest rates and reduce Japanese government bond purchases was a surprise, driven by concerns over the yen’s weakness.
Economic Pressure: A weaker yen, especially against the dollar (e.g., hitting 155-160 yen per dollar), is seen as harmful to Japan’s broader economy, despite some advantages for exporters.
Policy Implications: The BOJ may need to consider further rate hikes if the yen continues to depreciate, as currency intervention alone may not suffice to stabilize the yen.
Interest Rate Differential: The disparity between Japanese and U.S. interest rates adds pressure, as U.S. long-term rates remain high due to inflation expectations.
Potential Actions: The BOJ could be compelled to normalize its policies further and raise interest rates to support the yen, mitigating economic risks tied to currency value.
If the Bank of Japan raises rates another 25 basis points like they did July 31 of this year, there is a risk of the yen-carry trade unwinding again which caused significant volatility in global markets the week after.
Related content: Reuters revisits the yen carry trade armed with hindsight (October 10th)
Some think the yen-carry trade is still a risk spectre that haunts any further BOJ rate rise, such as Francis Tan of CA Indosuez Wealth Management on September 18th, 2024.
At time of publication, the USD / JPY rate is 155.06 to the US dollar.
