The Japanese Yen (JPY) has seen a sharp decline over the past week, starting with a three-week low and ending with a record low on December 20 after the Bank of Japan (BoJ) decided to keep interest rates unchanged.
The yen started the week trading around 153.960 JPY/USD, marking a three-week low as the market expected the BoJ to leave interest rates unchanged. Meanwhile, the US Federal Reserve (Fed) moved to continue cutting interest rates to control economic growth. Although the yen later recovered slightly to 153.566 JPY/USD, the downtrend remained dominant.
The yen fell to a four-month low of 156.77 yen per dollar in the final trading session of the week after the BoJ meeting, when it announced it would keep interest rates unchanged at 0.25 percent. The surprise decision raised concerns as markets had been expecting a rate hike to curb inflation. However, the CPI rose more than expected, reaching 2.9 percent in November, leaving open the possibility of a BoJ policy change in 2024.
Pressure from the US market last week: The yield on the 10-year US government bond increased, thanks to the retail sales data that beat forecasts, increasing 0.7% in November. Although the Fed has cut interest rates, market sentiment shows that the pause in cutting may start from early next year, increasing pressure on the Yen.
Next week, fresh economic data such as the US personal consumption expenditure (PCE) price index and Japan's inflation forecast will play an important role. If US bond yields remain high, the downward pressure on the yen will continue.
However, the BoJ is likely to adjust policy later this year to support a recovery in the yen, especially if CPI continues to rise. Comments from Governor Kazuo Ueda will be the focus of investors, along with global yield movements. Investors should closely monitor signals from both the US and Japan to predict the next trend.
Update the latest Yen exchange rate HERE.
