The Yen/Dollar (JPY/USD) exchange rate continues to rise

Recently, as expectations of a rate hike by the Bank of Japan continue to rise, the yen/dollar exchange rate in the foreign exchange market has fluctuated significantly. In the past February, the yen/dollar exchange rate rose significantly, and this upward trend continued after entering March.

In February, the yen/dollar exchange rate experienced a strong upward trend, mainly due to the market’s gradual increase in expectations for the Bank of Japan to raise interest rates, which greatly increased the attractiveness of the yen in the foreign exchange market. The improvement in Japan’s domestic economic data, such as a moderate increase in inflation and a continued improvement in the employment market, have provided support for the rising expectations of Japan’s interest rate hikes.

For example, the latest data released by the Ministry of Internal Affairs and Communications of Japan showed that Japan’s core consumer price index (CPI) hit a 19-month high in January, and the inflation level gradually approached the 2% target set by the Bank of Japan. Affected by this, throughout February, the yen/dollar exchange rate rose from around 153.20 yen per dollar at the beginning of the month to around 147.80 yen per dollar at the end of the month, with a cumulative increase of about 3.5%, far exceeding the increase of currencies such as the euro and the pound against the dollar during the same period. Entering March, the yen-dollar exchange rate continued its upward momentum. As of March 6, it continued to hover around 147 yen to the dollar.

The market is generally optimistic about the future trend of the yen-dollar exchange rate. Many analysis agencies believe that as long as the expectation of the Bank of Japan’s interest rate hike continues, the yen-dollar exchange rate is expected to continue to rise. Analysts at BNP Paribas Asset Management pointed out in a report released this week that the yen-dollar exchange rate is expected to rise to around 130 yen to the dollar, driven by rising interest rates in Japan. The huge interest rate gap between Japan and the United States has always been a key factor affecting the yen exchange rate. As the Bank of Japan raises interest rates and the Federal Reserve continues to cut interest rates, the yen may rise another 10% to 15% from its current level. The agency believes that the Bank of Japan has good reasons to tighten monetary policy because inflation approaching the 2% target looks more sustainable.

ING Group also said in a report released this week that the Bank of Japan may release a clearer signal of interest rate hikes at its monetary policy meeting in March. It further pointed out that most markets currently expect the Bank of Japan to raise interest rates in July, but the agency judges that it may take action as early as May. Once the Bank of Japan raises interest rates, the yield on yen assets will increase, attracting more international funds to flow into Japan, which will in turn drive the yen to further appreciate.