It's the end of negative interest rates in Japan on the horizon
Is the end of negative interest rates in Japan on the horizon, and will the yen experience a resurgence? Bank of Japan Governor Ueda has expressed hawkish comments on the negative interest rate policy, leading to an uptick in the yen against all top ten currencies.
By year-end, the Bank of Japan may have sufficient information to determine whether wages will continue to rise – a critical factor in deciding the fate of the ultra-loose monetary policy. However, Governor Ueda also stated that the Bank of Japan is still some distance away from achieving its price stability target and will maintain a cautious stance on monetary easing policies.
In early Asian trading on Monday, the yen-to-dollar exchange rate rose by as much as 0.8%, reaching 146.67 yen per dollar. Some attribute this to geopolitical tensions, as U.S. President Joe Biden claimed that China's economic problems have weakened its ability to invade Taiwan, leading to a flight to the safe-haven yen.
Due to Ueda's hawkish-sounding remarks in the interview, the market widely interprets that Japan's long-standing negative interest rate policy may be coming to an end. Some experts even predict that Japan is likely to terminate its negative interest rate policy in 2024, and Ueda may have already begun encouraging the market to factor in this scenario. However, with the U.S. 10-year Treasury yield surpassing 4%, testing the long-term trend of the USD/JPY exchange rate solely based on policy adjustments will be challenging.
The widening interest rate gap between Japan and the United States has consistently been a key factor in the yen's weakness, making the high-yield U.S. dollar naturally more attractive. The yen has already declined by 11% this year, nearing its lowest level in over three decades, close to the level where officials last intervened. This month, with Japanese officials stating that they won't rule out any measures to counter excessive volatility, speculative traders in the market will remain on edge for some time.
The latest data shows unexpected slowing in Japanese wage growth in June, a sign supporting the BOJ's ultra-loose policy, as it reflects a labor market that may have lost some vitality.
By year-end, the Bank of Japan may have sufficient information to determine whether wages will continue to rise – a critical factor in deciding the fate of the ultra-loose monetary policy. However, Governor Ueda also stated that the Bank of Japan is still some distance away from achieving its price stability target and will maintain a cautious stance on monetary easing policies.
In early Asian trading on Monday, the yen-to-dollar exchange rate rose by as much as 0.8%, reaching 146.67 yen per dollar. Some attribute this to geopolitical tensions, as U.S. President Joe Biden claimed that China's economic problems have weakened its ability to invade Taiwan, leading to a flight to the safe-haven yen.
Due to Ueda's hawkish-sounding remarks in the interview, the market widely interprets that Japan's long-standing negative interest rate policy may be coming to an end. Some experts even predict that Japan is likely to terminate its negative interest rate policy in 2024, and Ueda may have already begun encouraging the market to factor in this scenario. However, with the U.S. 10-year Treasury yield surpassing 4%, testing the long-term trend of the USD/JPY exchange rate solely based on policy adjustments will be challenging.
The widening interest rate gap between Japan and the United States has consistently been a key factor in the yen's weakness, making the high-yield U.S. dollar naturally more attractive. The yen has already declined by 11% this year, nearing its lowest level in over three decades, close to the level where officials last intervened. This month, with Japanese officials stating that they won't rule out any measures to counter excessive volatility, speculative traders in the market will remain on edge for some time.
The latest data shows unexpected slowing in Japanese wage growth in June, a sign supporting the BOJ's ultra-loose policy, as it reflects a labor market that may have lost some vitality.