Analysts at Deutsche Bank conclude that the Japanese yen is following the same dynamic as the worst-performing currencies in the last few years, namely, the Turkish lira and the Argentine peso. “A simple glance of the yen's drivers — yields and external accounts — puts the Japanese yen in the same league as the Turkish lira and Argentine peso,” analysts reckon.
How come the currency of the robust Asian economy is now akin to the troubled currencies of emerging markets? Analysts have pinpointed the reasons behind the protracted malaise of the yen. The first one is the extremely low yields of Japan’s government bonds due to the unwillingness of the central bank to raise the key interest rate from the negative territory. Besides, a flagging current account and domestic money flowing into foreign assets add fuel to the fire.
According to Deutsche Bank’s estimates, the Japanese currency has slumped by 15% against the US dollar this year, extending its steep losses of 2022. The yen has firmly got stuck at about 150 against the greenback. Recently, USD/JPY even hit 151.10, the weakest level in 33 years.
Interestingly, the 15% slump does not mean that the yen has reached rock bottom. Analysts foresee room for further weakness. The Turkish lira has tumbled by 51% against the US dollar this year. The Argentine peso has plunged by a whopping 97%.
The Bank of Japan is to blame for the yen’s protracted weakness. Remarkably, it is the only major central bank that has kept its policy interest rate in negative territory, defying the global trend of aggressive monetary tightening. Besides, the Bank of Japan strictly controls the cap on the yield of the 10-year government bond.
Deutsche Bank points out a contraction in the current account as another factor to drag down the yen. This happens due to the outflow of domestic investors’ capital into foreign assets. Indeed, Japan’s government bonds lack investment luster nowadays.
Experts at Deutsche Bank believe that forex intervention by the Bank of Japan will hardly prop up the yen as such measures might take their toll on the national economy. Selling its stash in US dollars, the government will push US Treasury yields up, thus strengthening the US dollar, not the yen.
