The dollar fell back below the 130 yen mark on Tuesday, a first in session since the beginning of June 2022, while speculation on an upcoming monetary tightening by the Bank of Japan (BoJ) continues to be rife.
The dollar was at 129.84 yen around 0700 GMT, against 130.80 yen on Monday. It had gone down to 129.54 yen earlier in the session.
The yen fell last year to its lowest levels since 1990 against the dollar, amid the growing gap between the drastic monetary tightening of the US Federal Reserve (Fed) and the continuation of the ultra-accommodative policy of the BoJ .
However, since peaking at 150 yen last October, the dollar has weakened as US inflation has started to decelerate, which has allowed the Fed to slow the pace of its rate hikes.
Elsewhere, the BoJ surprised everyone in December by loosening some weight in its tight control of Japanese 10-year bond yields. According to her, this decision was aimed at correcting market distortions caused by her monetary policy, which she did not, however, call into question.
But it ignited speculation that the BoJ would tighten its course in 2023 and gave the yen a further boost against the dollar as investors began to repatriate funds to Japan.
If the first wave of repatriation flows pushed us to 130 (yen for the dollar, editor’s note), there is potentially a lot more to come, because the BoJ could unambiguously tighten its policy sooner than expected. Operators are therefore positioning themselves to anticipate this phenomenon, commented on Tuesday with AFP Stephen Innes, of SPI Asset Management.
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According to reports from the Japanese daily Nikkei last week, the BoJ is expected to significantly raise its inflation forecasts for fiscal years 2023/2024 and 2024/2025 (starting April 1 and ending March 31 of the following calendar year) .
The institution is currently expecting median inflation of 1.6% in Japan over the next two years, excluding fresh products, against 2.9% for the current financial year 2022/23.
A significant increase in these forecasts would undermine the BoJ’s interpretation that the current inflation in Japan is only transitory because it is essentially linked to import costs, and that therefore a tightening of credit conditions is not yet necessary. .