We felt the intervention coming for a few days, after the proliferation of statements from Japanese officials worried about the acceleration of the fall of the yen against the dollar. Statements that could seem paradoxical because the Bank of Japan continues to apply an accommodating monetary policy and has still not raised its rates: why then be surprised at the slide of its national currency when such a divergence in monetary policy exists? with the Fed normalizing with rate hikes of 0.75% all at once?
Even if from a “divergence of monetary policy” point of view, we can understand that the yen is falling against the dollar, this is not the opinion of the Japanese authorities who believe that the speed of the slide is not only linked to this divergence but to speculation. The Bank of Japan is the first to have “opened fire” against the strong dollar… and this could well start to make investors or speculators hesitate on the remaining upside potential for the dollar against other major currencies like the euro or the pound.
Japan: the yen at its lowest for 20 years, what impact on growth?
Indeed, the rise of the Dollar Index (that is to say the dollar against major currencies) has reached 25% since January 2021. A strength of the dollar which is the consequence of inflation which first accelerated in the States countries, more attractive US bond yields than elsewhere, the safe haven status of the dollar in the face of geopolitical crises (Ukraine, Taiwan, etc.).
Christine Lagarde also underlined at the last meeting of the ECB the weakness of the euro, which favored inflation, a sign that we no longer want a fall in the euro. And what about the dollar at its highest since…1985 against the pound sterling!
“Annus horribilis for the Japanese yen”, which falls against the major currencies
It looks like the Dollar Index’s rate of rise is set to slow in the coming weeks and months as the pain threshold has been reached for several central banks.
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But it seems that the stabilization or even the inflection of the dollar will come when US inflation starts to send clear signals of an ebb, thus limiting the aggressiveness of the Fed and therefore the rise in bond yields.
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