The yen may continue to weaken despite the Bank of Japan's interest rate hike

Vikram Murarka, foreign exchange expert and chief strategist at Kshitij Consultancy, forecast that even if the Bank of Japan raises interest rates, the yen’s weakening trend may not change easily. He explained that, despite policy intervention by the United States and Japan, the yentodollar exchange rate returned to the 160yen range, indicating that the yen’s longterm weakening trend is still intact. Murarka pointed out that Japan’s inflation had fallen below the 2% target, and although the interest rate gap between the U.S. and Japan had narrowed significantly compared with the past, the yen had instead weakened. He analyzed that recent exchange rate movements have been more closely linked to the relative movements of the Nikkei Average and the Dow Jones Index, as well as Japan’s capital outflows, than to interest rate differentials. He left open the possibility that the yen could weaken to 170 per dollar over the long term, as long as the 155–152.5 yen range per dollar remains a key support level. However, he added that the outlook could change depending on further interest rate hikes by the Bank of Japan or changes in U.S. monetary policy.