Zhitong Finance learned thatAvet63The yen strengthened after suspected intervention by the Bank of Japan, but is now weakening again, with the yen trading at 156 per dollarAvet63.47, losing 5 marks per 100 yen to the Hong Kong dollar at 4.992. XuemingSong, a monetary strategist at DWS, said the yen is expected to remain under pressure in the medium term unless the Bank of Japan changes monetary policy in favor of higher interest rates. It is widely believed that the yen will weaken further after the intervention of the Bank of Japan and the release of weak short-term data in the US, and the market expects the yen to fall to 170 against the dollar. This means that at 7.81 per US dollar against the Hong Kong dollar, every 100 yen against the Hong Kong dollar is likely to fall to 4.59.

DWS said the previous rebound in the yen was mainly due to the intervention of the Bank of Japan, and that weaker-than-expected US economic data over the past two weeks had also contributed to the rebound in the yen. As the market is extremely bearish on the yen, the yen is likely to appreciate further against the dollar. Still, unless the Bank of Japan changes its monetary policy in favor of raising interest rates, the yen is expected to remain under pressure in the medium term. It is worth noting that domestic institutions are also mainly shorting the yen, as can be seen in the portfolios of Japanese insurers and pension funds.

In fact, DWS believes that Japan's inflation rate is in line with the BoJ's forecast and is on track to meet its target of about 2 per cent. However, there may be two reasons why financial markets did not respond positively after the yen raised interest rates. First, the Bank of Japan still holds a dovish position. Second, the Bank of Japan has not published a policy outlook or interest rate path. From an economic point of view, even if Japan raises wages in 2023, domestic consumption is still very weak, so the Bank of Japan has been hesitant to raise interest rates. Without a sustained recovery in consumption, the target of 2 per cent inflation in the medium term is unlikely to be achieved.

In addition, if the yen falls to 170 yuan against the dollar, the impact on Japan is obvious, as imported inflation will boost domestic inflation, but high prices will have a negative impact on consumption and may even offset all the positive effects of agreed wage increases in the past, the 2 per cent inflation target could once again become out of reach.