Is The Japanese Yen In The Same League As Argentine Peso, Turkish Lira — Report Paints A Bleak Picture

Deutsche Bank, in a recent report, compared the Japanese Yen with some of the world’s weakest currencies.

What Happened: The report drew parallels between the weak fundamentals of the yen and those of the Argentine peso and the Turkish lira. It was authored by George Saravelos, Global Head of Foreign Exchange Research at Deutsche Bank, reported Business Insider.

Saravelos pointed out that the Bank of Japan’s unique yield curve control and its reluctance to raise interest rates have resulted in the yen’s issues, leading to record low real yields. This scenario has triggered a gradual capital flight from domestic investors into foreign assets.

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Although the yen’s losses against the dollar are not as severe — it has declined by 15% this year, compared to the lira’s 51% and the peso’s 97% — its fundamentals remain weak, according to Saravelos. He cautioned that any intervention by the Bank of Japan in the currency markets might backfire. He suggested that the bank should consider hiking rates and halting its quantitative easing campaign to stabilize the yen.

While Japanese authorities have recently tried to relax yield restrictions, the market’s response has been tepid, with the yen reaching a new low of 151 against the dollar.

Why It Matters: As reported previously in an article on Benzinga on Benzinga, the Bank of Japan (BoJ) has taken certain market and monetary interventions amidst an economic climate of high US interest rates and a downturn in China’s property market.

The Japanese economy, supported by rising consumer prices due to a weak yen and a central bank policy of continued negative interest rates, starkly contrasts the global economic sentiment. The second quarter of the year witnessed a GDP growth of 4.8% in Japan. The current performance of the yen could impact these growth dynamics.

Photo by jun rong loo on Unsplash

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