Notwithstanding the global economic recovery from the pandemic, Japan remains to be standing still, with its currency value eroding.
The year 2021 saw the yen performing the worst among Group-of-10 currencies, slumped almost 6% against the dollar. Japan is the only economy that hasn’t shown signs of a rising interest rate.
According to ZERO Markets’ Meta Trader 5 platform, the yen has already slumped almost 6% against the dollar this year, the worst performance among Group-of-10 currencies, as global markets prepare for interest rates to begin creeping higher almost everywhere except Japan.
The Japanese economy has had structural differences compared to most countries. A return to normal for other countries generally refers to the dialing back of extremely loose monetary settings. Whereas, Japan has been beset by pro-longed deflation and crisis settings that were already the norm. As the global economies recover, the gap between the Japanese economy and the rest of the world saw investors extending their yields search abroad, while companies seek expansion in mergers and acquisitions overseas, increasing currency outflows.
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According to the chief global strategist at B Riley Securities Inc., Mark Grant said that Japan is not responding slower economically than the United States or Europe in correspondence to the pandemic. Therefore, it’s expecting to see more pressure on the yen against the euro and the dollar.
The head of foreign-exchange strategy at Nomura Holdings Inc. also pointed to the fundamental problem being low inflation and lack of expectations for prices to rise, which won’t be resolved anytime soon.
Furthermore, strategists in Tokyo note the apparent weakness of the yen against resource exporters’ currencies, like Canada, Australia, New Zealand, and Norway. Strategists are expecting this weakness to continue as the dollar exerts its dominance over the yen.
Key events this week (Economic Calendar):
- European Central Bank Decision (Thursday)
- US Consumer Price Index (Thursday)
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