The US dollar plays a particularly important role to rally against the Japanese currency since the U.S. Federal Reserve cut rates by 50 basis points to 5 percent. It dollar advance of 2.6% against the Japanese yenwhich is again exchanged for 144.5 yen, much to the dismay of the Bank of Japan.
It’s the world upside down. As a general rule, when a central bank lowers its interest rates, its currency tends to lose value relative to other market benchmarks. Even more so when there is an adjustment like the one observed last week in the United States on which not all experts were counting. However, Dollar trades almost flat against euro since September 18 (the date on which the American Federal Reserve announced the end of rates at 5.5%) and is benefiting against the Japanese currency given the immobility of the Bank of Japan.
Governor Kazuo Ueda wants to avoid a shock market that causes a new collapse of its stock market and conditions its next movements. In fact, the Bank of Japan has decided stay careful after two upward adjustments of 35 basis points in total to the current rate of 0.25% (They were negative until March of this year).
The yen is now reflecting the market’s changing expectations for its exchange rate against the dollar in the short to medium term. While previously the US Federal Reserve was expected to maintain its rate cuts while the Bank of Japan would gradually raise its rates, they are now being considered. less changes on the Japanese side in the coming months, as Bloomberg reports. And it ends with a dollar regaining ground against the yen, which was at its highest level in 2024, also against the rest of the major currencies of the market.
In addition, the Bank of Japan is awaiting the election process for the new leader of the country’s Liberal Democratic Party (LDP), following the decision by the current prime minister and senior representative of the (LDP) not to reconfirm his position. The party primaries are scheduled for September 27, and the new prime minister is expected to take office on October 1, according to local press reports.
On the other hand, the Japanese currency could also be affected by the Pacific economies. The decision of the Chinese authorities to revive their own financial market will also have an effect on the Japanese currency. “It The yen fell against its peers also due to the announcement of stimulus measures by China to increase its risk assets,” commented the head of foreign exchange strategies at AZN bank, Hiroyuki Machida. The market consensus collected by Bloomberg considers that the dollar will close the year at 142 yen on average, which would imply a decline of 1.5% from current levels.
