Post by account_disabled on Feb 27, 2024 23:41:17 GMT -5
The yen fell to its lowest level against the dollar since November on Friday, increasing pressure on the Bank of Japan to tighten its ultra-loose monetary policy and support the faltering currency. The Japanese currency fell to ¥146.6 per dollar after Jay Powell, chairman of the US Federal Reserve, raised the prospect of further increases in domestic interest rates, potentially widening the yawning gap between Japan's borrowing costs. United States and Japan. Japan has been the only major developed market not to raise interest rates in the past 18 months as countries face the worst inflation shock in a generation. Although the country has spent decades battling the threat of deflation, recent signs of economic resilience and domestically driven price increases are raising market expectations that the Bank of Japan will tighten its stance.
Given the resilience of the Japanese economy, with the latest producer prices for services surprising to the upside, I believe there will be greater pressure on the Bank of Japan to tighten monetary policy at a faster pace to Job Function Email Database avoid a depreciation of the yen.” said Tomasz Wieladek, chief European economist at T Rowe Price. The strain on the currency comes just weeks after the Bank of Japan's surprise decision to relax controls on its government bond market, easing a cornerstone of its ultra-loose monetary policy. In late July, the Bank of Japan said it would tolerate 10-year government bond yields of up to 1 percent, from a previous level of 0.5 percent. Yields on benchmark Japanese government bonds have risen since then, rising 0.03 percentage point this week to 0.66 percent. Investors expect this trend to continue as long as inflation remains above its 2 percent target. “We believe that higher inflation will cause the BoJ to adjust its forecasts at its next quarterly monetary policy meeting.
This may serve as a prelude to the BoJ declaring victory over deflation and removing yield curve control,” said Mark Dowding, chief investment officer at RBC Bluebay Asset Management. “We would see this pushing 10-year yields towards 1.25 per cent, until then we think yields will continue to rise.” Investors say rising Japanese yields will accelerate bond sales in other major markets as Japanese investors look for higher yields closer to home. Line chart of 10-year JGB yield (%) showing Japanese bond yields rising “As yields rise, large domestic investors have an increasing incentive to repatriate funds, sell foreign bonds and reinvest in Japanese government bonds,” said Christian Abuide, head of asset allocation at Lombard Odier. "The benefit of doing so is as high as it has been in the last decade." T Rowe Price's Wieladek added that there was already a "significant knock-on effect" from the Bank of Japan's decision in July: "It is keeping yields globally more resilient and at higher levels than people expected.
Given the resilience of the Japanese economy, with the latest producer prices for services surprising to the upside, I believe there will be greater pressure on the Bank of Japan to tighten monetary policy at a faster pace to Job Function Email Database avoid a depreciation of the yen.” said Tomasz Wieladek, chief European economist at T Rowe Price. The strain on the currency comes just weeks after the Bank of Japan's surprise decision to relax controls on its government bond market, easing a cornerstone of its ultra-loose monetary policy. In late July, the Bank of Japan said it would tolerate 10-year government bond yields of up to 1 percent, from a previous level of 0.5 percent. Yields on benchmark Japanese government bonds have risen since then, rising 0.03 percentage point this week to 0.66 percent. Investors expect this trend to continue as long as inflation remains above its 2 percent target. “We believe that higher inflation will cause the BoJ to adjust its forecasts at its next quarterly monetary policy meeting.
This may serve as a prelude to the BoJ declaring victory over deflation and removing yield curve control,” said Mark Dowding, chief investment officer at RBC Bluebay Asset Management. “We would see this pushing 10-year yields towards 1.25 per cent, until then we think yields will continue to rise.” Investors say rising Japanese yields will accelerate bond sales in other major markets as Japanese investors look for higher yields closer to home. Line chart of 10-year JGB yield (%) showing Japanese bond yields rising “As yields rise, large domestic investors have an increasing incentive to repatriate funds, sell foreign bonds and reinvest in Japanese government bonds,” said Christian Abuide, head of asset allocation at Lombard Odier. "The benefit of doing so is as high as it has been in the last decade." T Rowe Price's Wieladek added that there was already a "significant knock-on effect" from the Bank of Japan's decision in July: "It is keeping yields globally more resilient and at higher levels than people expected.