Yen weakens to 2008 lows against euro despite Bank of Japan rate hike

MADRID, 20 Mar.

Yen weakens to 2008 lows against euro despite Bank of Japan rate hike


The price of the yen against the main currencies continued to weaken this Wednesday, particularly against the euro, whose crossing marked its lowest levels since 2008, despite the fact that the Bank of Japan announced yesterday the first increase in interest rates in 17 years, given the market expectation that this decision will not, for the moment, mark the beginning of a cycle of tightening of the country's monetary policy.

In the foreign exchange market, the yen exchange rate remained relatively stable against the dollar, which was exchanged this Wednesday for just over 151 yen, in line with the levels maintained since last November.

However, the euro appreciated substantially against the Japanese currency and could be exchanged for up to 164.75 yen, its best exchange rate since August 2008.

So far this year, the euro has appreciated around 6% against the yen and 18% in the last twelve months, while the dollar exchange rate has risen almost 8% since the end of last year and around 16% in twelve months.

The Bank of Japan decided at its meeting this Tuesday to make a historic turn in its monetary policy by announcing the first increase in the price of money in 17 years, thus ending the era of negative rates in which the institution entered 2016, thus becoming the last central bank in the world to close this monetary chapter.

The Bank of Japan's Policy Council announced a rise in the short-term reference rate to a range of 0% to 0.1% in what represents the first increase in the country's interest rates since 2007.

Likewise, as part of the exit strategy, the entity also decided to end control over the yield curve of Japan's ten-year sovereign bonds, another measure implemented since 2016 within the framework of its quantitative and qualitative easing policy ( QQE), which according to the entity "has fulfilled its function."

However, despite the agreed historic rate hike, the Bank of Japan stressed that given the current outlook for economic activity and prices, it anticipates that accommodative financial conditions will remain for the time being.

In this sense, Marcel Thieliant, head of Asia Pacific at the consulting firm Capital Economics, pointed out that the Bank of Japan would probably not raise the interest rate further in the coming months. "We do not expect any further increases in official interest rates," he said.

For his part, Shigeto Nagai, chief economist for Japan at Oxford Economics, believed that the Bank of Japan will maintain an effective zero interest rate policy for at least another year.

"After being in a low rate environment for many years, the Japanese economy is extremely vulnerable to a rise in long-term yields," warned Nagai, for whom a rate hike would worsen the fiscal situation, and the banking system could be shaken by a significant loss in bond portfolios.