The worst period is over? Traders: BOJ rate hike prospects boost, looking for the yen to rise to 145 by the end of the year

In recent days, the Japanese Yen has shown strength, seemingly indicating that its worst period is over. Many analysts believe that the Yen still has further room for appreciation.

On Thursday, July 18, the exchange rate of the Japanese Yen against the US Dollar broke through the 156 level for the first time since June, rising by about 4% since the Japanese authorities intervened in the exchange rate last week.

Multiple factors resonate to support the Yen's appreciation. Some analysts believe that due to investors' strong belief that the Federal Reserve will cut interest rates as early as September, the Yen's rebound may continue.

Jun Kato, Chief Market Analyst at Tokyo Shin Kin Asset Management, stated:

"The era of a weak Yen has ended, as the real interest rate gap between Japan and the United States is significantly narrowing due to slowing US inflation, cooling labor market, and economic growth slowdown."

Furthermore, criticism of the exchange rate by Trump and Tokyo officials has also driven the Yen's appreciation. On July 16, Trump stated in a media interview that due to the weakness of the Yen and others, the US faces a "serious currency problem," increasing the possibility that if he wins the election, he will take action to devalue the US Dollar.

Japanese ruling party lawmaker Kono Taro emphasized the issues brought about by a significant devaluation of the Yen, stating that while a weaker Yen helps promote exports, its benefits to Japan are currently limited, and he called for the central bank to raise interest rates to boost the Yen.

Most analysts are optimistic about the Yen's outlook:

Jonas Goltermann, Deputy Chief Economist at Capital Economics, stated that interest rate differentials may continue to shift in favor of the Yen, and he expects the Yen to rise to 145 by the end of this year.

Homin Lee, Asian Macro Strategist at Lombard Odier, also expects the Yen's appreciation momentum to strengthen: "Given the unusually cheap valuation of the Yen and the steady improvement in Japan's long-term economic fundamentals, we do believe that the Yen will eventually stabilize slightly in the medium term."

This rebound may also alleviate some concerns of the Japanese authorities. According to statistics, last Thursday and Friday, the Japanese authorities conducted two large-scale interventions in the foreign exchange market, totaling approximately 5.6 trillion Yen. Prior to this, Japan also conducted large-scale interventions at the end of April and early May.

However, conflicting opinions persist. Facing remaining uncertainties such as the US presidential election and interest rate divergence risks, traders still need to deal with a challenging outlook.

Yujiro Goto, Head of Foreign Exchange Strategy at Nomura Securities, stated,

"Has the situation in the Yen market already changed? The answer is yes, but it is still too early to judge in the long term."

On Thursday, the Yen against the US Dollar briefly rose to 155.37, but the Yen remains the worst-performing currency against the US Dollar among the Group of Ten (G10) currencies. Year-to-date, the Yen has fallen by about 10%, to levels last seen in the 1980s