Throughout most of 2024, the yen has seen weakness levels not seen since 1986, BOJ interventions, and a rapid strengthening after the BOJ raised rates.
Throughout most of 2024, the yen has seen sharp volatility, with the currency weakening in June to levels not seen since 1986 and prompting the Bank of Japan to intervene.
"We believe we can call it a 'safe haven' given the fact that Japan remains largest external creditor, and is seeing sustainable current account surplus and inflation ," said Ryota Abe, an economist at Sumitomo Mitsui Banking Corporation. Deficits tend to weaken currencies while surpluses strengthen them.
This interest rate differential had led to what is known as the"carry trade," where investors borrow cheaply in yen to invest in higher yielding assets. If the BOJ's decision was the cause of the volatility, the market reactions would have been much stronger, Abe said, adding that the yen"should have been bought back immediately after the BOJ's decision, but that was not the case."
This volatility may come from the BOJ's monetary policy moves, but Abe does not foresee any rate hikes from the BOJ"for now."
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