The Japanese yen (JPY) held near 153.5 per dollar on Tuesday after a significant drop in the previous session, primarily driven by the dollar’s strength. This downward pressure on the yen is largely attributed to expectations of robust U.S. economic growth and inflationary trends, reinforced by trade policies under a Trump administration. These factors have sparked anticipation that the U.S. Federal Reserve may adopt a more hawkish approach, further boosting the dollar and putting pressure on the yen.
On the domestic front, the Bank of Japan (BOJ) released its summary of opinions from the October policy meeting, highlighting an ongoing divide among policymakers regarding the appropriate timing for potential interest rate hikes. Some members expressed concerns about rising market volatility and global economic uncertainties, which could impact Japan’s economic stability. Additionally, the yen’s recent depreciation has become a significant talking point within the BOJ, as the weaker currency could lead to increased import costs and potentially higher inflation domestically.
Despite these concerns, the BOJ continues to maintain its forecast that it could raise its benchmark policy rate to 1% by the latter half of fiscal 2025. This cautious outlook indicates the central bank’s intention to gradually tighten policy without disrupting Japan’s economic recovery, which is still sensitive to global market fluctuations. However, this approach has not alleviated concerns regarding the yen’s decline.
In response to the yen’s ongoing depreciation, Japanese authorities have issued fresh warnings aimed at stabilizing the currency. Finance Minister Katsunobu Kato recently addressed the foreign exchange market, stating that Japan is prepared to take “appropriate action” to manage any extreme fluctuations in the yen’s value. This verbal intervention signals the government’s commitment to maintaining stability in the currency market and may serve as a warning to investors against further speculative pressure on the yen.
Looking ahead, the yen’s trajectory remains uncertain as it faces both external pressure from a strong dollar and internal challenges due to Japan’s policy outlook. The market will likely continue to closely monitor U.S. economic data and BOJ policy updates, as these factors will play a pivotal role in determining the yen’s direction in the coming months.
