This year, the yen has been hit hard by the Bank of Japan's policy, which continues to dovish. However, Goldman Sachs believes that the yen's black streak may soon end.
The yen has been in a steady bearish trend for several months now. Since the beginning of the year, it has fallen against the dollar by 12%. At the same time, its losses amounted to 6% only in April.
The main obstacle to the growth of the currency is the exchange rate of the Japanese central bank. Despite rising inflation, the central bank still does not support the hawkish mainstream.
At the end of last month, the Bank of Japan announced that interest rates remained at a negative level, and also announced the continuation of the policy of quantitative easing.
The situation for the yen was aggravated by a significant strengthening of the dollar, which received the support of the Federal Reserve. Like many other world central banks, as part of the fight against high inflation, the Fed is set to tighten its monetary policy.Since the beginning of the year, the Fed has already raised interest rates twice: in March - by 25 bp, and in May - by 50 bp. The latest change in the indicator was the strongest since 2000.
In April, the Japanese yen fell to a 20-year low against the dollar. Right now, the USD/JPY pair is still at an all-time high. So, at the time of writing, it was trading at 130.40.
This morning, the greenback rose slightly against the yen. The dollar was given a boost by a recent hawkish comment from FOMC member Loretta Mester.
The official said that Fed policymakers do not completely rule out the possibility of raising interest rates by 75 bp. in the current year.Also, the dollar is rising on concerns about a slowdown in global economic growth due to the continuation of quarantine in China and the Russian-Ukrainian conflict.
However, Goldman Sachs analysts believe that the dollar's appeal as the main hedge against a recession may soon decline. Now the Japanese currency is ideal for this role.
The yen is currently the cheapest safe-haven asset, experts emphasize. It is strongly oversold and undervalued against the dollar (by about 20-25%).
As the risk of a global recession grows, we will see a gradual increase in demand for the defensive yen, the bank predicts.A real slowdown in global economic growth could lead to a fall in the USD/JPY pair by 15-20% from current levels.
In addition, analysts do not exclude the possibility of currency intervention in the foreseeable future, because the USD/JPY pair has already risen to critical levels. It is possible that the official intervention will also help strengthen Japan's currency.
Scotiabank experts also write about a potential slowdown in the bearish trend and a moderate rise in the yen in the long term. At the same time, they draw attention to the fact that in the near future the yen will continue to decline against the dollar for some time.
As for today, the dynamics of the USD/JPY pair will depend on the release of key data on the consumer price index in the US.Economists expect US annual inflation to slow to 8.1% in April from 8.5% in March. If the forecast comes true, this could force the Fed to postpone talks of a 75 bp rate hike for a while.
