The Japanese yen has become the worst-performing currency among the ten major currencies in the world since the beginning of this year. According to the Bloomberg Dollar Spot Index, the yen’s performance declined against the U.S. dollar in spot transactions by 5.63 percent this year, recording a total decline of 7.8 percent, equivalent to 142.35 yen per dollar.
However, after 3 consecutive years of significant decline, economists say the the yen could recover in 2024. Experts explained to Bloomberg that they expect the Japanese currency to rise next year. The scenario can come into play when the Bank of Japan exits the last negative interest rate system and its global peers reduce borrowing costs.
The situation will not disappoint yen traders, according to Shoki Omori, a strategist at Mizuho Securities, Tokyo. He sees that the currency’s long decline is coming to an end. Moreover, he stated that the Bank of Japan cannot tighten policies any further. However, it is determined to increase negative interest rates.
In addition to the yen, the global landscape looks clearer than it did 12 months ago. Last year, traders were discussing the possibility of U.S. interest rates peaking in 2023. However, forecasts from Fed policymakers this month point to cuts of 75 basis points in 2024.
As for the rest of the major currencies, the Norwegian krone was among the other currencies that performed poorly against the dollar, as it fell by 4.19 percent. Meanwhile, the New Zealand dollar recorded a decrease of 0.77 percent.
On the other hand, the Swiss franc rose against the U.S. dollar by 8.2 percent. Meanwhile, the British pound rose by 5.16 percent and the Swedish krona by 3.78 percent.
Highest level in 24 years
Last year, the U.S. dollar jumped to its highest level in 24 years against the Japanese yen. It benefitted from the contradiction between Japan’s accommodative monetary policy and the Federal Reserve’s hawkish policy which is determined to reduce inflation to the 2 percent target level.
The Japanese yen fell during trading to 140 yen for one dollar, reaching a level last seen in August 1998.
Since the beginning of this year, the Japanese currency has fallen by 25 percent against the dollar. The 140 yen threshold represents another milestone in the yen sell-off in terms of investor attitude.
Additionally, the yen’s move comes in the wake of new data on manufacturing in the United States. Thus, the Institute for Supply Management’s factory activity index exceeded analysts’ expectations for last August. This indicates that the Federal Reserve Bank has the freedom to continue fighting inflation.
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