Yen's Fall Resurges: Surpassing 155 Yen per Dollar, Background and Future Outlook

In the Tokyo foreign exchange market, the yen fell to around 155 yen per dollar, reaching its weakest level in about three and a half months. While the sharp rise in the dollar and fall in the yen seen last year following former President Trump's victory, often referred to as the "Trump trade," had subsided, the yen's decline is now accelerating again.

This time, the weakening yen is thought to be a complex result of factors including rising expectations for long-term US interest rates, differences in US and Japanese monetary policies, and concerns about a slowdown in the Chinese economy.

Rising Long-Term US Interest Rates and Monetary Policy

In the US, the possibility of a "triple red" scenario, where the Republicans hold a majority in both the House and Senate, is increasing. This is raising expectations that the aggressive fiscal policies pursued under the Trump administration could be implemented again, leading to a rise in long-term US interest rates.

Furthermore, the Federal Reserve (FRB) has been aggressively raising interest rates since 2022 to curb inflation. Although rate hikes have been paused, the FRB remains cautious about lowering rates given the persistently high inflation rate.

Meanwhile, Japan's central bank (BOJ) has maintained its long-standing monetary easing policy, widening the interest rate differential between the US and Japan. This has led investors to buy the higher-yielding dollar, putting further downward pressure on the yen.

Concerns about a Slowdown in the Chinese Economy

The Chinese economy is slowing down due to factors such as the impact of the zero-COVID policy and the slump in the real estate market. As the world's second-largest economy, China's economic conditions significantly impact the global economy.

Concerns about a slowdown in the Chinese economy are increasing investors' risk aversion, leading to capital flowing into the dollar, considered a safe-haven asset. As a result, this accelerates the rise of the dollar and the fall of the yen.

Expert Opinions

Tetsuhei Ino, chief analyst at Mitsubishi UFJ Bank, points out that the yen could weaken to the mid-155 yen range in the short term. He further analyzes that "in the medium to long term, the yen could weaken further depending on the economic policies that the Trump administration will implement."

Yasuyuki Ishii, chief research strategist at Sumitomo Mitsui DS Asset Management, anticipates that the yen-dollar exchange rate will remain range-bound for the time being, but will gradually rise with a decline in US interest rates.

Future Outlook

The future direction of the yen will depend on various factors, including US monetary policy, developments in the Chinese economy, and the Bank of Japan's policies.

If inflation in the US is brought under control and the FRB shifts to rate cuts, it could lead to a weaker dollar and a stronger yen. However, if inflation persists or if the slowdown in the Chinese economy worsens, the yen could weaken further.

The Bank of Japan conducted a review of its monetary policy in April 2023 under new Governor Kazuo Ueda, but currently maintains its monetary easing policy. However, if the yen weakens rapidly, it cannot be ruled out that the BOJ will be forced to change its policy due to market pressure.

Impact and Countermeasures of Yen Weakening

While a weaker yen leads to improved performance for export companies, it burdens households through higher import prices. It also increases the cost of overseas travel and studying abroad.

To mitigate the impact of a weaker yen, households can consider saving more or exploring investment opportunities that benefit from a weaker yen. At the corporate level, companies need to address issues such as reviewing overseas sales prices and reducing costs.

Summary

The weakening yen is a significant issue that greatly impacts the Japanese economy. It is necessary to closely monitor future developments and take appropriate measures.