Against the backdrop of developments in the New York market, the yen strengthened rapidly despite factors supporting the dollar, with the yen briefly advancing to the 152 range. Concern is focused on “speed” rather than the level.
The yen has risen rapidly over the past week, strengthening to the 152 range at one point. The move has been unusual, with the yen gaining even as factors supporting the dollar remain in place.
Comments concerning the BOJ’s monetary policy outlook are one factor behind the move. A series of hawkish remarks by BOJ Policy Board members has suggested consecutive rate hikes, and the absence of any comments rejecting that view has strengthened market expectations that the pace of rate hikes could accelerate more quickly than anticipated.
The concern is focused more on the speed of the yen’s appreciation than its level. In the past, a sharp rise in the yen triggered an unwinding of yen carry trades and led to a global sell-off in equities. There are concerns that a similar chain reaction of position unwinding could occur this time.
A stronger yen is likely to weigh on Japanese stocks in the short term, particularly those of exporters, while the yen could also be favored as a destination for funds moving away from the dollar. Against the backdrop of a narrowing gap between Japanese and U.S. monetary policy, the yen market is entering a volatile phase.