The yen per dollar soared to the late 151 yen range on the 13th, falling to the lowest level of the year, in the wake of the U.S. government bond rate hike. Some predict that the yen’s weakness will accelerate as yen carry trade transactions become active due to rising interest rates on U.S. government bonds.
The yen per dollar was trading at 151.79 yen
as of 3:10 p.m. on the Tokyo foreign exchange market on the 13th. The yen-dollar exchange rate, which has fluctuated slightly around 150 yen since the end of last month, has continued to weaken since it surpassed 151 yen on the 9th. If the yen’s value per dollar exceeds last year’s high of 151.942 yen and exceeds 152 yen, it will break a 33-year lowest since 1990.
Investors’ selling of the yen widened as the interest rate gap between the U.S. and Japan widened in the aftermath of the rise in the U.S. 10-year Treasury yield. The U.S. 10-year Treasury yield rose 0.54% from the previous trading day (4.628%) to 4.653% as Moody’s Investor Services, a U.S. global credit rating agency, lowered the outlook for the U.S. long-term bond credit rating from “stable” to “negative.”
Another factor behind the weakening yen was the rapid widening of the short-term interest rate gap between the two countries, which led to active yen carry trade. The yen carry trade refers to raising the yen, a low-interest currency, and operating a high-interest currency with funds sold. The Nikkei Shimbun explained that investment using the difference in interest rates is increasing rapidly as the gap between the two countries in short-term interest rates, which are the procurement rates of the yen and the dollar, exceeds 5%.
Some predict that the yen will continue to weaken for several months even after the end of the U.S. interest rate hike. “As the yen carry trade encourages the sale of the yen, the link between the U.S. key interest rate hike and the weakening yen is expected to fade,” Nikkei said. “As expected by Goldman Sachs, the yen may weaken further over the next few months and the yen may fall to 155 yen per dollar .”