Yen Under Pressure from Strong Dollar Amid Hawkish Central Bank Policies
The yen has come under pressure from a strong dollar as traders bet that Japan's central bank will struggle to keep pace with hawkish monetary policies implemented by other major economies.
On Tuesday, the yen traded at 157.33 against the US dollar after drifting lower on Monday.
This move is largely due to the Bank of Japan's (BOJ) interest rate hike last Friday, which was met with two dovish dissents, contrasting with the Federal Reserve's hawkish tone and other global central banks that are sounding increasingly aggressive in their monetary policies.
Carlos Casanova, senior Asia economist at Union Bancaire Privee, noted that unless the BOJ tightens policy more rapidly than the Federal Reserve, the US-Japan interest rate differential will continue to support yen-funded carry trades.
Casanova also predicted that dollar-yen would rise to 160 by year-end before appreciating moderately to 156 by mid-2027.