Dollar forecast to weaken against yen in 2023

Jiji Press

17:53 JST, January 1, 2023

Tokyo (Jiji Press)—The dollar is forecast to weaken against the yen in 2023 as the interest rate gap between Japan and the United States is seen narrowing, market watchers say.

Many expect the U.S. Federal Reserve to stop its interest rate hike campaign this year, while the Bank of Japan is seen scaling back its monetary easing after Governor Haruhiko Kuroda leaves by completing his term in spring.

Last year, the dollar shot up to a 32-year high of just below ¥152 in mid-October from around ¥115 in the first quarter.

The spurt was fueled by aggressive interest rate hikes by the Federal Reserve, which marked a sharp contrast to the BOJ’s stance of keeping its monetary policy intact.

The dollar’s jump versus the yen accelerated rises in energy and other prices in Japan. This led the government to conduct a yen-buying currency market intervention for the first time in 24 years in September. The government also bought yen in the market the following month.

From November, the dollar lost steam as U.S. inflation slowed. In December, the currency changed hands between ¥130 and ¥140.

Of the 11 financial market watchers surveyed by Jiji Press. nine said that the dollar will weaken against the yen mainly in the second half.

“The dollar is seen falling against the yen gradually” as market players expect both Japanese and U.S. monetary policies to go into reverse from 2022, said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management Co.

But none of the 11 forecast that the dollar may fall below ¥120 at its worst this year.

“Japan’s trade balance, now in the red, is unlikely to improve, limiting the upside of the yen,” MUFG Bank chief analyst Teppei Ino said.

Six watchers predict that the dollar may rise above ¥145, from which market speculation for a yen-selling intervention is likely to intensify, sometime during 2023.

One even said the dollar may reach ¥150 again if unexpected events happen, such as a BOJ failure to change its monetary policy and a longer-than-expected continuance of U.S. interest rate hikes.

Last year, the dollar had large fluctuations, moving roughly between ¥113 and ¥152.

“2023 is also expected to see relatively big swings,” said Yuzo Sakai, a senior official at currency market broker Ueda Totan Forex Ltd.