Yen's pain not over yet as dollar could rise further to JPY150 - ING

(Alliance News) - The Japanese yen's dire year could have further to run, ING has said, given higher-for-longer interest rates in the US.

The dollar was trading at JPY140.70 in London on Friday afternoon, and has gained 28% against the yen over the past 12 months.

The yen is currently priced at levels not seen since 1998, despite its status as a safe haven currency in the midst of market turmoil.

ING said the data appears to suggest the yen has lost some of its safe haven properties due to two issues: central bank tightening in the US, and the energy crisis.

Japan imports all its energy, leaving it vulnerable to the shock Russia's invasion of Ukraine has created.

Surging energy prices mean Japan's terms of trade "have collapsed", said ING.

"Last summer Japan was earning JPY6 trillion a year on trade. Over the last 12 months, that trade surplus has swung to a JPY6 trillion deficit on higher energy bills. A safe-haven currency typically needs to be backed by a strong trade surplus, such that there is a natural demand for a currency in a crisis. The JPY has lost that backing from trade," the Dutch bank said.

Meanwhile, the dovish Bank of Japan is on a different course to most other major central banks, which have raised interest rates aggressively in the face of soaring inflation.

The market currently expects the US Federal Reserve to hike rates by 75 basis points for a third meeting in a row later this month.

The Bank of Japan has not raised interest rates since 2006.

The yen is moving into territory likely to spark some overt concern from Japanese policymakers, but "we are a long way from a 1980s Plaza-type accord to weaken the dollar in general," said ING.

It added: "That would require the Fed needing to cut rates (highly unlikely this year) or the BoJ to hike rates (again unlikely). So given the way things are going this year, a move to JPY150 certainly can’t be ruled out."

By Lucy Heming; [email protected]

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