The wall is about 125 yen "Kuroda Line"

 The depreciation of the yen against the dollar does not stop. In the New York market on the 23rd and the Tokyo market in the early morning of the 24th, the dollar was in the 121 yen range, the lowest price in 6 years. The yen's depreciation trend, which has continued almost consistently since the end of 2020 at 102 yen, is unlikely to change, especially since the US interest rate hike last week.


Of course, Russia's invasion of Ukraine from a month ago has invited "emergency dollar buying", and other currencies such as the euro have also fallen, so it cannot be said that the yen is depreciating. However, the Bank of Japan has shown no sign of monetary policy changes as the US is expected to raise interest rates continuously. The interest rate differential between Japan and the United States is expected to widen unilaterally, making the yen a particularly easy-to-sell currency.


The number of yen sellers is increasing. Not only so-called speculative sources, but also macro hedge funds are increasing their entry into yen sales. The depreciation of the yen will not be easily settled in terms of supply and demand.


These speculators and hedge funds see the yen's depreciation as a barrier for the time being at the level of 124.50 yen to 125 yen. On June 10, 2015, when the yen was depreciating and approaching 125 yen, Governor of the Bank of Japan Kuroda told the House of Representatives that the yen was depreciating considerably. This remark triggered a sudden appreciation of the yen by about 2 yen. For this reason, there are many views in the market that about 125 yen is the "Kuroda line" that the Bank of Japan does not want to depreciate further.


Speculators will try to reach this level of around 125 yen in the near future. Whether the Bank of Japan or government officials will make statements like those in 2015. Speculators will test the will of the monetary authorities by selling yen. Until then, at least the depreciation of the yen will not stop.


The market environment as of June 2015 is similar to what it is now. At that time, the recovery of the US economy was beginning to show that the zero interest rate policy that had continued since the 2008 Lehman shock was being lifted. In fact, at the end of the year, the US Fed decided to raise rates by 0.25%. Last week, the United States, which had returned to the zero interest rate policy due to the corona, stepped up to raise interest rates and changed the zero interest rate policy. It is common that the rise in US interest rates was the driving force behind the depreciation of the yen.


From 2015 to 2020, the yen depreciated at around 125 yen in June 2015, when Kuroda made a statement, and the yen did not depreciate any further. The US Fed has raised interest rates nine times since the end of 2015 until the end of 2018, and the interest rate differential between Japan and the United States has continued to widen. Still, the yen did not depreciate.


If the course is similar to the previous depreciation of the yen, it can be said that the depreciation of the yen is about to end. On the other hand, as the US is expected to raise interest rates more rapidly than in 2016, there is a possibility that it will move toward another 130 yen by the end of the year. The uncertain situation in Ukraine also makes it difficult to read the movement of the yen.


The problem is that if the yen depreciates so that the 130-yen level can be seen, it may not end with a temporary depreciation due to the depreciation of the yen reflecting the decline of Japan's economic power. If the yen is perceived as an endless depreciation trend, yen sales may begin in which foreign capital escapes from Japan. It could also be forced to raise interest rates to prevent the yen from depreciating, which could hurt the Japanese economy.


It has been a long depreciation of the yen since the end of 2020, but can it be stopped? It can be said that the yen is approaching a rather dangerous level of depreciation.

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