The Japanese yen continues to face significant pressure, recently trading at 154.6 against the U.S. dollar as of November 18, 2024. This decline follows comments from Bank of Japan (BOJ) Governor Kazuo Ueda, who indicated potential monetary policy tightening but refrained from specifying a timeline for a rate hike. Ueda warned against keeping borrowing costs too low, a sentiment that has heightened market speculation regarding future interest rate adjustments [b6ea4dcf].
Market participants are closely monitoring the situation, with a 54% chance anticipated for a quarter-point rate hike during the BOJ's meeting on December 19. This speculation has contributed to the dollar's recent rise of 0.17% against the yen [b6ea4dcf]. Meanwhile, the dollar index fell 0.5% to 106.20, reflecting a complex interplay of factors influencing the currency markets [b6ea4dcf].
The U.S. dollar has been on an upward trend, bolstered by high Treasury yields and a cautious outlook on U.S. rate cuts. Analysts predict a 5% appreciation of the dollar by the end of 2025, influenced by former President Trump's tariff policies. The dollar index remains steady after reaching a one-year high of 107.07 [8f7c3e4a].
Japanese Finance Minister Katsunobu Kato has warned that rapid depreciation of the yen could prompt government intervention, reflecting growing concerns over the currency's stability [8f7c3e4a]. The current conditions index of the Economy Watchers' Survey dropped to 47.5 in October, signaling a potential slowdown in economic activity. Despite Japan reporting a current-account surplus of ¥8.97 trillion ($57.5 billion) in Q3 2024, brisk capital outflows from Japan's slow-growing economy are exerting depreciation pressure on the yen [5bdd974a].
The International Monetary Fund (IMF) has previously noted that while a weak yen benefits exports, Japan's increasing reliance on foreign digital services has led to a growing 'digital deficit,' which reached 5.5 trillion yen ($34 billion) in 2023. This deficit poses a long-term risk to the yen's value [14712233].
As Japan's economy shows signs of recovery, with industrial production improving and business investment picking up, the government has downgraded its view on public investment for the first time in eight months, indicating a cautious outlook on future growth [e6cb3830].
In contrast, India has been actively borrowing in Japanese yen for major projects, taking advantage of the yen's depreciation against the Indian rupee. However, this strategy carries risks, particularly if the yen appreciates in the future [2eb50bfa].
Japan's primary income surplus reached a record ¥12.2 trillion in Q3 2024, but direct investment flows out of Japan have exceeded inflows almost every quarter since 1996. As of June 2024, Japan's foreign direct investment stood at 8.3% of GDP, the lowest among the world's 20 largest economies, limiting the potential for yen appreciation [7384621d].