The Japanese currency-related exchange traded fund has been taking a beating, with the yen reeling to a 24-year low against the U.S. dollar, as diverging central bank policies weighed on the Asian currency.
The CurrencyShares Japanese Yen Trust (NYSEArca: FXY), which tracks the yen currency moves against the U.S. dollar, was up 0.1% on Friday, but it declined 18.2% so far this year.
Meanwhile, the Japanese yen was trading around ¥140.14 against the U.S. dollar, touching its lowest against the greenback since August 1998.
While the Federal Reserve has indicated that it will do whatever it takes to curb inflationary pressures even at the cost of weakening the economy, the Bank of Japan continued to hold on to its negative short-term rates policy, the Wall Street Journal reports.
Fueling this loose monetary policy outlook, BOJ governor Haruhiko Kuroda noted that Japan has “somewhat miraculously” managed to raise core consumer inflation to 2.4% and could even go higher this year, but it won’t last as inflation is projected to slip to 1.5% in 2023.
“So we have no choice other than continued monetary easing until wages and prices rise in a stable and sustainable manner,” Kuroda said.
The drastic difference in monetary policy outlook, with the Fed anticipating further interest rate hikes, and the BOJ maintaining its loose outlook, have contributed to the strengthening U.S. dollar and depreciating yen currency.
Bart Wakabayashi, the co-manager of State Street Bank and Trust Co.’s Tokyo branch, argued that the difference between interest rate policies between the U.S. and Japan has been the key factor behind the recent currency pair moves, further adding that the trend is being supported by the belief both central banks will hold the course on their respective inflation targets.
“The BOJ and the Fed have the respect of the market, they have credibility,” Wakabayashi told the WSJ. “There were some dissenters regarding the Fed’s direction, but after Jackson Hole, everyone is on board now.”
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