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Yen Strengthens Beyond 140 Per Dollar for First Time Since 2023 - BLOMBERG
(Bloomberg) -- The yen advanced past the key psychological level of 140 against the dollar as the Japanese currency extended its rally from the weakest point in nearly 38 years in July.
It appreciated as much as 0.6% versus the dollar to 139.96 on Monday, its strongest level since July 2023. The yen has been the best-performing Group-of-10 currency this quarter, with a 15% gain as investors position for a further narrowing of the interest-rate gap between the US and Japan.
The Federal Reserve appears all but certain to lower US borrowing costs on Wednesday — the the only question being by how much — while the Bank of Japan is expected to stay on hold on Friday after raising rates twice this year. Rekindled bets on a larger-than-usual interest-rate reduction by the US is sending a Bloomberg gauge on the greenback’s strength toward the lowest since January amid holiday-thinned liquidity.
It’s “mainly the countdown to Fed and the risk that they might do 50 instead of 25” basis points of rate cuts this week that’s supporting the yen, said Gareth Berry, a strategist at Macquarie Group Ltd. in Singapore. “The passage of time alone will work to drive dollar-yen lower, even if expectations for Fed easing do not change.”
The change of fortunes for the yen has been dramatic since July 3, when it reached a nadir of 161.95 against the dollar. It’s gone from a slump that prompted multiple bouts of intervention in the market by Japan to prop it up, to gaining so quickly that it’s denting the outlook for exporters, and in turn the Tokyo stock market.
While the BOJ may not change borrowing costs this week, a majority of economists surveyed by Bloomberg see another increase coming in December. The central bank’s hike of its policy rate to 0.25% on July 31 contributed to global markets turmoil in early August that rocked assets from currencies to bonds and stocks.
BOJ Governor Kazuo Ueda affirmed on Sept. 3 that the central bank will lift rates if prices are in line with forecasts, comments that supported the yen’s rebound.
The central bank will continue to adjust policy going forward, provided the economy performs in line with its projections, board member Junko Nakagawa said in comments on Sept. 11.
Read: Over Half of BOJ Watchers See Next Rate Hike Coming in December
On top of BOJ policies, a rapid unwinding of the so-called carry strategy, which involves traders borrowing the yen cheaply and investing the proceeds in a higher-yielding peer, has also contributed to the appreciation of the currency.
Many strategists have ditched previous forecasts of yen weakness and predict gains from here.
When the currency hit its multi-decade low in early July, some had warned that even intervention from Japan couldn’t stop the slide, with bears predicting that it would test 170 per dollar.
Dollar-yen may trade “sustainably lower at maybe 137-138 in the coming one to three months,” said Richard Franulovich, head of currency strategy at Westpac Banking Corp. in Sydney. A dovish Fed and hawkish BOJ “are admittedly priced but the reality of it can also have an impact.”
--With assistance from Matthew Burgess, Karl Lester M. Yap and Tian Chen.
(Updates with analyst quote and background.)
