The yen ended an 11-day losing streak after Bank of Japan Governor Haruhiko Kuroda said the pace of recent losses had been very rapid.
While a weak yen is positive for the economy, a rapid decline can disrupt business planning and is worth watching closely, Kuroda told parliament. The yen reversed its losses against the dollar by 0.3% to climb from 10:30 a.m. in Tokyo.
Investors bet on further yen weakness as the monetary policy divergence between the BOJ and the Federal Reserve is expected to widen. Asset managers took bearish bets to a record high last week, while leveraged funds’ net short positions were just at their highest in more than three years, according to the latest data from the Commodity Futures Trading Commission. .
The currency fell to a 20-year low this month as a dovish BOJ keeps local yields anchored to the floor while their US counterparts jump on expectations of aggressive Fed hikes. The yen has also suffered from Japan’s position as an energy importer and is the worst performer in the Group of 10 this year with a decline of around 9%.
“The uptrend of the dollar-yen remains intact, just that the pace could become a little slower as markets have priced in almost everything related to rate hikes in the United States,” said Koji Fukaya, chairman of ‘Office Fukaya Consulting in Tokyo. Factors driving the yen lower remain in place, with Japan’s trade deficit lingering and the yield gap between Japan and the United States on a widening trend, he added.
A consensus is building among Tokyo market watchers that the yen may extend its losses to the ¥130 to the dollar level in the coming months before stabilizing. Investors are betting that interest rate divergence will outweigh efforts by government officials to lessen the currency’s slide.
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