In the last month the Yen reached 160 against the dollar, a level that has not been recorded since 1990.
This has marked the arrival point of a long depreciation trend that finds its main causes in the divergence of monetary policy, in the different trajectories of economic growth and in the inflationary dynamics compared to the Western world.
If, in fact, in the post-Covid phase in the rest of the world the main central banks proceeded to raise rates to cope with inflationary pressures, in the country of the Rising Sun there was growth and low inflation, and an ultra-monetary policy accommodative, in contrast to that of the FED and the ECB. This environment has favoured carry trade operations, which have further weakened the yen.
The next key event will be the June meeting of the Bank of Japan (boj), where the central bank will have to take into account not only the dynamics of internal growth and inflation, but also the effects that higher interest rates could have on the cost of the country’s debt. You will need to wait for a clear signal from the boj before the Yen can catch up.
Take a look at the May market analysis by Lorenzo Fuscà, Head of Wealth Management and Emanuele Fino, CFA, Investment Advisory at Banca Profilo.
