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Japanese yen poised to post worst year against the dollar since 1970

Japanese yen poised to post worst year against the dollar since 1970

The Thai baht is not alone in sinking against the US dollar.


By In Conjunction

Monday 31 October 2022, 07:03PM


With the Japanese yen also set to post one of its worst-performing years against the greenback since 1970. The yen has lost a fifth of its value against the dollar and reached a new 24-year low of 146 yen to the dollar in recent weeks. It caused the Bank of Japan to intervene for the first time since 1998 and spend 2.8 trillion yen in the form of quantitative easing.

According to the latest polls from Reuters, the market expects the yen to only recover a third of its recent losses against the greenback. This view is largely founded by the consistently hawkish behavior of the US Federal Reserve, which is showing genuine intent to bear down on inflation. Meanwhile, the Bank of Japan continues to operate at the other end of the spectrum, adopting a more dovish tone.

Bank of Japan unlikely to follow the lead of the Fed

Haruhiko Kuroda, governor of the Bank of Japan, is showing no intent to tighten liquidity in the Japanese economy at present, which flies in the face of America’s ultra-tight policy. Consequently, it’s no surprise that the yen has been the poorest-performing fiat currency across the G10. Forex strategists polled by Reuters feel it will trade at 144 yen to the dollar at the end of 2022.

Strategy is one of the key aspects when it comes to trading the forex markets. Understanding macroeconomic factors, as well as technical trading signals, is part and parcel of turning a profit from major, minor, and exotic forex pairs, including the USD/JPY. Trading software has become a necessity for institutional and retail traders to monitor the markets and forecast market trends. MetaTrader 5 (MT 5) is the benchmark for trading platforms, offering full market depth and a wealth of order types and technical indicators to pinpoint the right entry and exit points.

The Bank of Japan’s dovish stance is somewhat surprising given that core consumer inflation in its capital was at its highest in eight years last month. With an inflation benchmark of 2% set for the Bank of Japan, it would appear inflation will be significantly above this figure for the foreseeable future – potentially further still if the Bank opts against a tightening policy.

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Japan’s central bank is likely to try and avoid a recession rather than wrestle with inflation

However, the central bank’s own survey suggests that economic sentiment had fallen for a third successive quarter in Q3 2022. The business outlook from Japan’s leading manufacturers fell from +9 to +8 in the bank’s “Tankan” survey. The bank will need to weigh up whether to tackle inflation head-on or accept inflation and thwart a possible recession by maintaining a loose fiscal approach.

Sentiment across Japan’s service sector looked a little brighter in September, which was slightly up on the previous quarter. However, retailers themselves voiced concerns over the cost-of-living crises affecting their target demographics hard in their back pockets. Despite being Asia’s second-biggest economy, Japan has wrestled with stagnant economic growth for more than a generation.

The Bank of Japan’s dovish stance is somewhat surprising given that core consumer inflation in its capital was at its highest in eight years last month. With an inflation benchmark of 2% set for the Bank of Japan, it would appear inflation will be significantly above this figure for the foreseeable future – potentially further still if the Bank opts against a tightening policy.

Japan’s central bank is likely to try and avoid a recession rather than wrestle with inflation

 

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