Japanese Yen Fundamental Forecast: Prices Approach 1998 Levels Ahead of BOJ

The Japanese yen is the most widely traded currency in Asia. This currency contributes about 17% of foreign exchange transactions. The Japanese government controls the interest rates in the country’s currency. The central bank keeps the yield on the 10-year Japanese government bond at zero. Negative interest rates have encouraged traders to use low-cost Japanese yen to purchase high-yield assets. This strategy has resulted in big moves in the Yen.

In the second quarter, markets punished the Japanese yen. USD/JPY rose to its highest level since 1998. This happened as the Bank of Japan’s monetary policy diverged from its major peers. This made life for the yen very difficult. Moreover, US Treasury yields outpaced Japanese counterparts, which made the yen look less attractive.

While the Yen remains the third most traded currency, there is still a good chance of big moves. Although Japan’s economy is stable, the Yen is very volatile in times of uncertainty. This uncertainty makes Japanese government bonds more appealing. This is also one of the reasons why the USD/JPY pair has experienced such big moves recently.

The Japanese Yen is one of the most exposed currencies in the world. Investors and traders look for higher yielding assets and currencies. When risk appetite increases, prices rise. Meanwhile, investors and traders seek safe-haven assets, and the Japanese yen is one of the safest.