According to a Reuters poll, the Japanese yen will likely suffer more than a 20-percent loss by the end of this year, trading at around 144 yen per U.S. dollar. It will be the Japanese currency’s worst loss since 1970.
The yen lost a fifth of its value against the greenback, reaching a 24-year low of 146 yen per U.S. dollar by the end of September. The situation prompted the Japanese government to sell its dollar assets and purchase yen in the forex market, reportedly spending 2.8 trillion yen to fund the intervention. The move caused the yen to bounce back, but only momentarily.
The poll explained the policy gap between the Japanese central bank and the U.S. Federal Reserve. Japan has chosen to maintain its domestic interest rates as opposed to the Fed, which recently hiked interest rates. As a result, the U.S. dollar gained strength never seen in the last two decades.
"The Ministry of Finance trying to manage FX volume may suggest the BOJ not yet under pressure from the government to modify policy in response to weak yen," said Bank of America Securities FX strategist Shusuke Yamada.
Analysts said it would be tougher for the BOJ to maintain its current monetary policy. The consumer price index in Japan was at its highest level since 2014 last month, indicating that the inflation rate would remain above the BOJ’s target of two percent.
"It is hard to see a turn in USD/JPY now even after intervention by the MoF,” said Derek Halpenny of MUFG. “The Fed and global central banks have more tightening to do while the BOJ does nothing but ease."
It is expected that the greenback will start going down by the end of this year. The condition will lead to the yen having a better standing in 2023, rising by seven percent to trade at 135 yen per U.S. dollar. Despite that, analysts said that the yen would only be able to recoup a third of its loss next year.
Japan is an outlier among central banks for its policy. The Australian central bank earlier increased its interest rate by 25 basis points, in addition to raising its cash rate to 2.6 percent. The Bank of England also increased key interest rates this year.
U.N. demands central banks halt interest rate hikes
On Tuesday, the United Nations Conference on Trade and Development (UNCTAD) demanded that the Fed and other central banks halt the current trend of hiking interest rates. The U.N. body argued that simultaneous, continuous interest rate hikes in multiple countries could decrease global economic outputs. It warned that developing countries would be significantly affected by the situation.
“We have the tools to calm inflation and support all vulnerable groups,” Rebecca Grynspan of UNCTAD said. “But the current course of action is hurting the most vulnerable, especially in developing countries and risks tipping the world into a global recession.”
In response to the demand, Fed chief Jerome Powell asserted that his organization had considered the effects of its monetary policies on the global economy. He added that the Fed would still increase interest rates to manage inflation.