The yen entered an 11-day losing streak after Bank of Japan Governor Haruhiko Kuroda said the pace of recent losses has been very rapid.
While a weak yen is positive for the economy, a rapid decline can disrupt business planning and needs to be closely monitored, Kuroda told parliament. The yen reversed losses against the dollar of up to 0.3%, rising at 10:30 am in Tokyo.
Investors have been betting on further yen weakness with policy divergences between the BOJ and the Federal Reserve expected to widen. Money managers increased bearish bets to a record last week, while leveraged funds’ net short positions were just below their highest in more than three years, according to the latest data from the Commodity Futures Trading Commission.
The currency fell to a 20-year low this month as a dovish BOJ keeps local yields anchored while its US equivalents rise on expectations of aggressive Fed rate hikes. The yen has also suffered from Japan’s position as an energy importer and is the bottom performer in the groups of 10 this year, down about 9%.
“The dollar-yen uptrend remains intact, except that the pace may slow slightly as markets have priced in almost everything related to US interest rate hikes,” said Koji Fukaya, president of Office Fukaya Consulting in Tokyo. Factors driving the yen lower remain in place as Japan’s trade deficit persists and the Japan-US yield gap continues to widen, he added.
A consensus is forming among market watchers in Tokyo that the yen can extend its losses to the 130 yen/dollar level in the coming months before stabilizing. Investors are betting that interest rate divergence will outweigh government officials’ efforts to stem the currency’s slide.
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