The Bank of Japan (BOJ) has decided to implement a tighter monetary policy than before, revising its yield curve control (YCC) policy again in three months. However, the yen’s value has fallen and re-entered the 150 yen range per dollar. Analysts say the tightening intensity did not meet market expectations.
On the 30th (local time), the yen-dollar exchange rate reached 148.80 yen during the day, the lowest in two weeks (the highest value of the yen). The yen-dollar exchange rate closed at 149.10 yen, the lowest level since the 5th (148.50 yen). However, after the BOJ’s announcement, the yen weakened in the Asian market. Until noon on the 31st, just before the announcement, the yen was strong, moving between 149.42 and 149.46 yen per dollar, but the yen accelerated immediately after the announcement, rising to 150 yen (the yen’s value fell) and breaking the year’s high during the day.
In particular, the government and BOJ’s foreign exchange intervention performance from Sept. 28 to Oct. 27 announced by the Ministry of Finance later in the day was “0 yen,” raising concerns that it could further stimulate the yen’s selling sentiment. “Performance 0 yen” means that there was no foreign exchange intervention by financial authorities during this period, when the psychological resistance of the yen-dollar exchange rate broke 150 yen per dollar one after another, which could accelerate the yen’s low.
On the other hand, some predict that the change will serve as a sign of the BOJ’s policy shift, which has adhered to monetary easing so far, leading to the partial liquidation of the so-called “yen carry trade,” which sells low-interest yen and invests in high-interest assets. According to Bloomberg, the balance of yen loans by foreign banks in Japan, which gauges the size of the yen carry trade, was 12.9 trillion yen as of the end of April, up nearly 50% from the end of 2021. If the yen continues to strengthen in the future, the yen’s value, which encourages the departure of yen carry trade funds, which are sensitive to foreign exchange losses, and whose selling has weakened, could proceed again. Chris Weston, head of Pepperstone Research Australia, said, “The BoJ YCC adjustment will attract additional yen buyers and push the yen-dollar exchange rate lower.” However, some observers say that even if the upper limit of long-term interest rates rises, the interest rate gap with the U.S. remains, making it difficult to shift the trend of selling yen and buying dollars.