Yen likely to fall against dollar in Q4 or later, economists say

TOKYO, June 15 (Reuters) – The yen is likely to weaken further against the dollar for at least the rest of 2022, more than two-thirds of economists polled by Reuters said, pointing to the implications of the Bank of Japan or the only major central bank clings to a policy of ease.

The BOJ is sticking to the stimulus, stepping up its bond purchases to defend its yield cap even as the US Federal Reserve, already engaged in an aggressive campaign to hike rates by half a point, looks ready to debate an even bigger 75 basis point move on Wednesday. Read more

The resulting yen weakness is increasingly becoming a source of contention for policymakers. This hurts household budgets by driving up the cost of living, which is already rising due to global inflation, offsetting the boost a cheaper currency gives exporters.

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The Japanese currency has lost more than 14% against the greenback so far this year, briefly slipping to 135.58 yen to the dollar on Wednesday, its lowest since October 1998, which was a time of global financial stress. after a Russian debt default.

Wednesday’s level was already close to the weakest forecast for the next 12 months provided by one of 47 currency strategists polled by Reuters just two weeks ago – 135.67 to the dollar.

The fall in the yen was so severe that it led the government and the central bank to issue a rare joint statement on Friday expressing concern. Read more

“The yen is likely to remain vulnerable to weakening as Fed rate hikes and higher long-term Treasury yields continue throughout the year,” said Takumi Tsunoda, senior economist at Shinkin Central. Bank Research Institute.

The risk of further declines in the yen will persist until the last quarter of the year, said nine of the 25 economists surveyed. Another four said the risk would persist until the first half of next year, and five said it would last until the second half of next year or later.

Only seven predicted the risk would run its course by the end of the next quarter, while none said the yen was at risk of further weakening.

In a multiple-selection question asking for the government’s most effective action to stem further weakening of the yen, 12 out of 25 economists chose to “reopen borders for more inbound tourists”.

This was followed by “press the BOJ to adjust monetary policies”, chosen by eight other respondents.

Letting in more foreign travelers would likely increase the demand for the yen. Japan began accepting chaperoned tourist groups this month, easing its previous COVID-19 border controls, which included a ban on almost all non-residents. Read more

Other options included “restart more nuclear power plants” (chosen by eight respondents), “continue verbal warnings” (six) and “no need to do anything in particular” (four).

The BOJ is expected to maintain its ultra-loose monetary policy in its next two-day rate review, which ends on Friday, according to the June 3-13 poll. Nearly 80% of 28 economists said the bank would not adjust its policies until the end of 2023 or later, and all but two expected such a change to undo the easing.

Japan’s economy is expected to grow 4.1% annualized in the current quarter, slower than the 4.5% projected in the May survey, according to median forecasts from 37 analysts.

The world’s third-largest economy is expected to grow 2.2% in the fiscal year beginning in April 2022 and 1.6% in fiscal 2023.

Core consumer prices, which exclude volatile fresh food prices, will likely rise 2.1% this fiscal year, before slowing to 1.1% in fiscal 2023, according to the survey.

(For more stories from the Reuters Global Economic Survey:)

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Reporting by Kantaro Komiya; Poll by Md Manzer Hussain and Anant Chandak; Editing by Ross Finley and Bradley Perrett

Our standards: The Thomson Reuters Trust Principles.

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