The dollar-yen exchange rate and the Japanese government's response: Background of the depreciation of the yen and future prospects
The depreciation of the yen and the appreciation of the dollar progressed until the latter half of the 1 dollar = 159 yen range. Among them, Treasurer Kanda of the Ministry of Finance stated that “when there is excessive fluctuation, we will take appropriate action,” and restrained market movements. We will consider what kind of impact this statement has on the exchange market and the outlook for the dollar to yen exchange rate in the future.
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✔️ Background of the depreciation of the yen
The main reason behind the current depreciation of the yen and appreciation of the dollar is the monetary policy of the Federal Reserve (Federal Reserve). In the New York foreign exchange market on the 21st, the view that the Fed is not in a hurry to cut interest rates intensified, and dollar purchases progressed. As a result, the yen exchange rate dropped to 1 dollar = 159 yen 80 yen to the high level of depreciation of the yen since 4/29 this year. The Fed's hawkish stance indicates that the US economy is strong and that it intends to keep interest rates high as a measure to control the inflation rate. As a result, the attractiveness of the dollar has increased, and investors continue to buy dollars.
✔️ Ministry of Finance's response
Treasurer Kanda's statement fights against excessive market fluctuations. Excessive fluctuations will have a negative impact on the national economy. Treasurer Kanda, who stated that appropriate action would be taken when there was an excessive fluctuation based on speculation, etc., suggested the possibility of market intervention, but he emphasized the attitude of responding to cases where there is a major fluctuation rather than intervention against a specific level. When asked about the status of preparations for market intervention as the 1 dollar = 160 yen range approaches, it was stated that “we are making it possible to do anything at any time as before,” and suggested a flexible response according to market trends without being particular about a specific level.
✔️ Forecast of the dollar to yen exchange rate
The future dollar to yen exchange rate will be greatly influenced by the following factors.
1. The Federal Reserve's monetary policy
As long as the Fed's stance on interest rate cuts does not change, there is a possibility that the dollar appreciation trend will continue. Attention is being paid to whether US economic indicators and inflation trends are signs of the Fed's policy change.
2. Japan's policy response
Specific countermeasures by the Japanese government and the Bank of Japan are important. If exchange intervention is actually carried out, a temporary movement in the appreciation of the yen and depreciation of the dollar is expected, but questions remain about its sustainability. Market participants are closely watching the movements of the Japanese government, and if specific actions are announced, they will have an impact on the market price.
3. Geopolitical Risks
Unstable factors in the international political and economic situation, such as US-China relations and European economic conditions, may also have an impact on exchange rates. If these risk factors become apparent, investor sentiment will change, and it is conceivable that it will cause turbulence in the exchange market.
✔️ Conclusions
The dollar to yen exchange rate is heavily dependent on the Federal Reserve's monetary policy and the Japanese government's response. The current trend of depreciation of yen and dollar appreciation is mainly due to dollar purchases due to the Fed's postponement of interest rate cuts, but it is attracting attention whether restraint due to statements made by the Japanese government will be a step towards stabilizing the market price. While keeping a close eye on market trends, quick responses to future policy trends and announcements of economic indicators are required.
✔️ Future highlights
Remarks at the next meeting of the Federal Reserve and the possibility of policy changes Specific exchange interventions by the Japanese government and the Bank of Japan: changes in international political and economic conditions
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