Japan’s stock market has been facing challenges due to the rapid appreciation of the yen, impacting the export competitiveness of the country’s manufacturers. The yen reached a seven-month high against the US dollar on Monday at around 143 before slightly decreasing to 146 on Tuesday.
The surge in the yen was triggered by the Bank of Japan (BOJ) signaling a more hawkish stance on monetary policy in recent weeks. This led to the unwinding of yen carry trades, a popular investment strategy where investors borrow cash at low rates in Japan to invest in higher-yielding assets in other currencies.
Stephen Innes, managing partner of SPI Asset Management, highlighted that the unwinding of carry trades in Tokyo had a significant impact, causing turbulence and uncertainty in the market. The BOJ responded on Wednesday by raising interest rates for the second time this year and announcing plans to taper its bond buying. Traders anticipate further rate hikes as the central bank aims to manage inflation.
Despite initial panic over the central bank’s decision, there are lingering concerns about future rate increases. However, experts believe that the BOJ is likely to proceed with additional rate hikes despite criticism in the media, showing a commitment to their monetary policy objectives.
