Pulais: The short-term rise of the yen may have come to an end
Prudential stated that the short-term upward trend of the yen may have ended, mainly because the interest rate differential between the US and Japan remains a key factor in the USD/JPY exchange rate. The Federal Reserve has maintained the benchmark interest rate in the range of 4.25% to 4.5%, and market expectations for US economic growth have been downgraded, with growth expected to be below 2% this year. Despite the slowdown in US economic growth, Prudential believes that a recession will not occur, and the market needs to reassess interest rate expectations. Local Japanese yields are rising, the financial environment is tightening, and the yen's sensitivity to external factors is increasing
According to the Zhitong Finance APP, the Federal Reserve maintained the benchmark interest rate in the range of 4.25% to 4.5%, as expected by the market. Zhong Xiaoyang, co-manager of the PruLife Multi-Asset Income Bond Strategy Fund, stated that the recent rise of the yen may have come to an end. The yen is currently at a crossroads.
PruLife explained that, on one hand, Europe has raised its economic growth expectations due to large-scale fiscal plans, supporting the strength of the euro and putting pressure on the U.S. dollar index. On the other hand, the U.S. is experiencing a slowdown in growth due to unclear policies, narrowing the interest rate gap between the U.S. and Japan. Many sell-side analysts have downgraded their growth forecasts for the U.S., with several now expecting growth to be below 2% this year, reflecting a significant decline in the market's overall optimism by the end of the fourth quarter of 2024.
Zhong Xiaoyang expects that U.S. economic growth will slow down but will not fall into recession. The firm believes that the market has already priced in more expectations for interest rate cuts. The market may need to reprice for more two-way risks. For example, if the unemployment rate remains low or more deregulation policies take effect, the market may need to raise its expectations for the federal funds rate in the second half of the year.
“The interest rate gap between the U.S. and Japan will continue to be the main driving factor for the USD/JPY exchange rate,” PruLife stated. However, compared to last summer, local yields in Japan have significantly increased, indicating that the financial environment is tightening due to the strengthening of the yen and rising local yields. The Bank of Japan has not indicated that exchange rate trends will affect monetary policy. However, this environment may make the yen more sensitive to external factors such as global growth