Popular consultant Nagae Isseki (永江一石) explained the outlook for yen depreciation and appreciation against the backdrop of Japan's fiscal position. He expressed the view that the yen will not strengthen over the long term and is unlikely to return to pre-pandemic levels.
When asked about future levels for USD/JPY and EUR/JPY, popular consultant Nagae Isseki (永江一石) concluded that they would not return to pre-pandemic levels. He said that there would be no phase of yen appreciation as a long-term trend, and analysed the impact of government bond issuance and tax changes in a situation where funding sources are limited.
Nagae Isseki (永江一石) identified the US-Japan and Japan-Europe interest-rate differentials, inflation rates, the trade and services balances, monetary policy and capital flows overseas, among other factors, as determinants of the yen exchange rate, and pointed out that under current conditions there were no factors supporting yen appreciation. He explained that Japan's fiscal position was a particularly important backdrop.
He also expressed the view that the era of filling fiscal gaps through refinancing strategies from the zero-interest-rate period, as in the past, had ended, and that the expansion of deficit-financing government bonds and the burden of interest payments would affect the yen exchange rate going forward. He noted that there was also debate over modern monetary theory, but expressed the view that continuing to build up debt was not appropriate during a period of rising interest rates.
Information about the author's newsletter and related links is also introduced, but the article primarily presents the future exchange-rate outlook based on Nagae Isseki's (永江一石) views and current fiscal and interest-rate conditions.