December 8, 2023

Yen comeback may be a longer waiting Game

Japan has a large current account deficit, which means that it imports more goods and services than it exports.

Yen

A recent analysis by CNA has suggested that the yen comeback may be a longer waiting game than previously anticipated. This is due to a number of factors, including:

The ongoing war in Ukraine, which is causing economic uncertainty and driving up demand for safe-haven assets such as the US dollar.

The Federal Reserve’s aggressive interest rate hikes, which are making the US dollar more attractive to investors.

The Bank of Japan’s continued commitment to ultra-loose monetary policy, which is keeping the yen weak.

In addition to these factors, the analysis also notes that the yen is facing some structural challenges. For example, Japan has a large current account deficit, which means that it relies on foreign capital to finance its economy. This makes the yen vulnerable to changes in investor sentiment.

Overall, the analysis suggests that the yen is unlikely to make a strong comeback anytime soon. Investors should be prepared to wait for a number of factors to change before the yen can start to appreciate against other currencies.

Here is a more detailed explanation of each of the factors mentioned in the analysis:

The ongoing war in Ukraine: 

The war in Ukraine has caused a great deal of economic uncertainty around the world. Investors are seeking out safe-haven assets, such as the US dollar, to protect their capital. This is putting downward pressure on the yen, which is not seen as a safe-haven currency.

The Federal Reserve’s aggressive interest rate hikes: 

The Federal Reserve is raising interest rates aggressively in an effort to combat inflation. This is making the US dollar more attractive to investors, as they can now earn a higher yield on their investments. This is also putting downward pressure on the yen.

The Bank of Japan’s continued commitment to ultra-loose monetary policy: 

The Bank of Japan has maintained an ultra-loose monetary policy for many years. This has kept the yen weak, as investors can earn a higher yield by investing in other currencies.

Japan’s large current account deficit: 

Japan has a large current account deficit, which means that it imports more goods and services than it exports. This makes the yen vulnerable to changes in investor sentiment. If investors become less confident in the Japanese economy, they may sell their yen assets, which would put further downward pressure on the yen.

Overall, the yen is facing a number of challenges that are likely to keep it weak for some time to come. Investors should be prepared to wait for a number of factors to change before the yen can start to appreciate against other currencies.

Leave a Reply

Your email address will not be published. Required fields are marked *