Detailed analysis of the Bank of Japan's government bond purchase reduction against the dollar to yen exchange rate
✔️ Detailed analysis of the Bank of Japan's government bond purchase reduction
1. Background and purpose of policy changes The Bank of Japan has increased the balance of government bonds held as a result of large-scale mitigation policies over a long period of time, and is considering reducing amounts as a step towards normalizing financial markets. The goal is to aim for sustainable economic growth and price stability without continuing to supply excessive liquidity to the market.
2. Specific reduction ranges and their effects When the current monthly government bond purchase amount of 6 trillion yen is reduced to 2 trillion to 3 trillion yen, the possibility that government bond prices will fall and long-term interest rates will rise will increase. Higher interest rates increase the attractiveness of yen denominated assets, so they put pressure on the yen to appreciate.
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✔️ Impact on the dollar to yen exchange rate
Changes in interest rate differences While long-term interest rates in Japan rise due to Bank of Japan's reduction, when long-term interest rates in the US maintain or decline as they are, the Japan-US interest rate difference narrows, which is a factor in yen appreciation. In that case, there is a possibility that the yen will appreciate to 158.000.
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Conversely, if the US also raises interest rates, interest rate differences will not change that much, and there is a possibility that pressure on yen appreciation will be reduced.
✔️ US economic conditions and dollar-yen exchange rate Federal Reserve monetary policy
If US inflation remains high, there is a possibility that the Fed will raise additional interest rates, and the appreciation of the dollar will progress. Conversely, when the US economy decelerates and the Fed stops raising interest rates or turns to interest rate cuts, the depreciation of the dollar progresses, and the dollar yen strengthens.
✔️ Comprehensive analysis
1. Scenario analysis
scenario 1
If the Bank of Japan reduces government bond purchases as expected, and the US interest rate policy maintains the current state, pressure on the yen will intensify.
scenario 2
If the Bank of Japan reduces the amount more than expected and the US continues to raise interest rates, the dollar-yen exchange rate will not show major fluctuations, and there is a possibility that it will stabilize.
scenario 3
If the Bank of Japan reduces amounts moderately and the United States implements interest rate cuts due to economic deceleration, there is a possibility that the yen will rapidly appreciate.
2. Short-term trend prediction
When the Bank of Japan's specific reduction plan is announced, the market immediately responds to the details. In particular, it is important to analyze it together with US economic indicators and the Federal Reserve's announcements. When risk aversion intensifies, the dollar-yen exchange rate tends to appreciate the yen.
✔️ Conclusions
There is a possibility that the Bank of Japan's reduction in government bond purchases will act as a factor in the appreciation of the yen, but since the impact changes drastically depending on the US economic situation and the Fed's policies, it is necessary to consider complex factors. Investors are required to appropriately evaluate market risk factors and perform portfolio risk hedging while closely monitoring trends in the Bank of Japan and the Federal Reserve.
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