Japanese yen expected to strengthen amid monetary policy shift

The Japanese yen is expected to strengthen as the country moves away from decades of deflationary trends and zero growth. Recent market movements, which saw the yen move from 160 per dollar toward the 153 level, are attributed largely to the closing of long-term speculative positions rather than direct central bank intervention.

Economic data suggests relative strength in Japan, making an interest rate hike by the central bank increasingly likely. While the government and central bank have previously shown hesitation regarding tightening monetary conditions, the shift toward a stricter outlook appears to be underway. However, any strengthening of the yen is expected to be moderate and controlled to avoid a rapid repatriation of foreign investments, which could negatively impact Japanese equity indices.