In March and April, the Japanese Yen lost a large amount of value. Despite the fact that many Japanese public officials expressed fears about FX volatility, a weakened Yen was considered favorable for their policy objectives.
On April 19th, the CNY/JPY cross rate reached a new high since the early 1990s, posing an issue. China and Japan are the world’s second and third biggest economies, correspondingly, in terms of GDP. They are in close vicinity geographically.
The People’s Bank of China (PBOC) devalued the yuan against the US Dollar as a result of this relatively abrupt increase in China’s currency against that of one of its key trading partners.
When the Yuan began to depreciate against the dollar, USD/JPY slowed in its ascent, settling in a 7-week range of 126.30 – 131.30. It breached the topside on Monday of this week, sending the CNY/JPY soaring once more.
A multitude of variables has sparked this round of Yen depreciation. Higher inflation expectations appear to have come from higher crude oil prices, reigniting fears of an accelerated Fed rate increase. Treasury rates have risen across the curve as a consequence.
Japan’s economy is significantly dependent on energy imports. Along with crude oil, the cost of gasoline, natural gas, heating oil, and diesel is rising. The Bank of Japan has stated that it will continue to pursue a relatively lax monetary policy, along with low long-term yields.
All of this works against the Yen, and it is difficult to imagine things improving shortly. Former Japanese vice finance minister Eisuke Sakakibara said three weeks ago that the USD/JPY may reach 150 in an interview with Bloomberg.
During his time at the helm, he was known as ‘Mr Yen’ for his orchestration of action. He went on to explain that for the time being, he does not anticipate Japanese authorities to intervene. USD/JPY would have to break a pair of decent records from early 2002, slightly over 135, to reach 150 in the near term.
June 10th will see the release of Japanese PPI and trade figures.
