A US economist said the Bank of Japan needs to raise its policy rate from 1.5% to around 2%, and forecast that the yen may move toward appreciation over the long term.
A prominent US economist said the Bank of Japan should raise rates further, stating that it may need to raise them at least another 2 to 3 times, and possibly 4 times.
As the BOJ proceeds with rate hikes, yields on long-term government bonds as well as the policy rate are expected to rise. This is viewed as part of the Japanese economy’s long-running normalization process.
As for the yen, the unwinding of the yen carry trade, in which investors borrow at low yen interest rates to invest in higher-yielding assets, is cited as a factor, with the trade said to be moving toward unwinding in the short term.
Over the long term, however, the yen may recover from its weakness, with a possible return to historical levels in the ¥130s or ¥120s. The view was also expressed that the FRB is likely to raise rates further, possibly moving in December or early next year.