The Japanese yen (JPY) has continued to fall steadily over the past few days, reaching its weakest level against the US dollar since the beginning of the year, with USD/JPY rising above 157. When measured against the average of all other G10 currencies, the Japanese yen has reached its weakest level this year and is now just over 1% above last summer’s level, which was the lowest level since the Great Financial Crisis, said Volkmar, foreign exchange market analyst at Commerzbank. Bohr notes.
Good reasons for the Japanese yen to strengthen next year
“If China were to consider imposing restrictions on Japanese machinery, electrical appliances, or chemical products, the Japanese economy could be severely affected. Japanese exports to China in these three product groups alone account for more than 50% of Japan’s total exports to China and more than 10% of total Japanese exports. The diplomatic situation still looks very impasse. China is demanding that Takaichi completely retract his statements on Taiwan. This is something Takaichi cannot do politically. So the situation could escalate further before then.” “It is improving, which will likely put more pressure on the Japanese yen.”
“In addition, rumors have recently emerged that the Japanese government’s new fiscal package could be worth up to 20 trillion yen, about twice what was previously assumed. This has pushed up yields and may also have contributed to a weakening of the Japanese yen, as such a package would likely increase inflation again, affecting real interest rates. However, resistance to the government’s plans seems to be slowly forming even within the ruling party. Given that Takaishi must not only convince her party and her coalition partner, But as at least one party opposes her plans in order to secure a majority in parliament, resistance within her own party is certainly not a good sign.
“At the same time, Takaichi met with BOJ Governor Kazuo Ueda for the first time on Tuesday. Ueda clarified that Takaichi did not give the BOJ any instructions. However, the government reiterated that it expects close coordination between the BOJ and the government. We do not expect the Japanese government to try to influence the BOJ’s short-term monetary policy, but we see a risk that the foreign exchange market could view it that way if the BOJ leaves interest rates unchanged in December. Contrary to our expectations, we see good reasons for the Japanese yen to strengthen in Next year.
