The yen experienced an upswing today following the Bank of Japan’s decision to maintain its ultra-low interest rates and Governor Kazuo Ueda’s remarks at the post-meeting press conference.
However, such positive movements might be short-lived. Recently, Japan’s currency has depreciated against the dollar, largely due to elevated U.S. Treasury yields and the dollar’s strength, which render yen-denominated assets less appealing. This persistent pressure on the yen is reflected in the muted yields of Japanese government bonds, as the BoJ continues its rate control policy.
The yen’s future is further complicated by the U.S. economic landscape, where robust performance indicators could drive U.S. yields higher, diverting investment away from Japan. A stronger dollar could exacerbate the yen’s decline, diminishing Japan’s purchasing power and increasing import costs, particularly for energy.
As the market hopes for a rate hike in the upcoming BOJ December meeting and considers the implications of a potential new government coalition, the convergence of currency weakness and low bond yields will continue to challenge Japan’s economic stability.
Market attention now shifts to the U.S., with the upcoming release of Core PCE data and the Personal Income and Spending report for September. Core PCE is expected to rise to 0.3% in September, up from 0.1% previously. If Core PCE exceeds market expectations, it could keep the dollar strong and further pressure the Japanese currency.
