Macro

Yen May Tumble 10% More, T. Rowe Warns Amid No Japan Intervention

Yen predicted to fall 10% amid BoJ's rate stance, hitting a 34-year low against a strong dollar, despite Japan's intervention warnings.

By Barry Stearns

4/15, 16:38 EDT
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Key Takeaway

  • T. Rowe Price forecasts a potential 10% drop in the yen against the dollar, citing Japan's low interest rate policy.
  • The yen has already weakened over 8% this year to around 154 to the dollar, with no significant intervention from Japanese officials yet.
  • Hedge funds increase bets against the yen, but Japan seems content with a weaker currency to avoid disinflation shock.

Yen's Downward Trajectory

The Japanese yen has experienced a significant decline, reaching levels last seen in 1990, and is predicted to slide another 10% due to the Bank of Japan's (BoJ) hesitancy to raise interest rates significantly. Quentin Fitzsimmons of T. Rowe Price Group Inc. highlights that a stronger currency is not in Japan's interest, especially considering debt-sustainability concerns. The yen's depreciation is partly attributed to the dollar's strength, as hot data in the US delays expected rate reductions by the Federal Reserve, pushing the yen down more than 8% against the dollar this year.

Market Reactions and Speculations

The market had been closely watching the 152 per dollar level, anticipating potential intervention by Japanese officials. However, despite reaching a 34-year low and hedge funds increasing their bets against the yen, there has been no clear sign of intervention. Japanese authorities have indicated readiness to act to support the currency, with recent warnings from Japan's finance minister and an unscheduled economic authorities' meeting causing a modest and temporary rebound in the yen's value.

Intervention and Policy Dynamics

Despite the BoJ ending its negative interest-rate policy, the yen continues to weaken, driven by the policy divergence with the Federal Reserve. Japanese officials have warned against excessive market swings and speculative moves, pledging bold measures to stabilize the currency. The effectiveness of potential interventions remains a topic of debate, with some analysts suggesting that interventions could offer trading opportunities, while others, like Bank of America, predict the yen could plunge to 160 per dollar unless the Fed cuts rates.

Street Views

  • Quentin Fitzsimmons, T. Rowe Price Group Inc. (Bearish on the Japanese yen):

    "It’s not in the interest of the Japanese to have a significantly stronger currency at this point... Even when they raise interest rates, they probably won’t want to raise it too far because then there’ll be debt-sustainability concerns."