Yen Appreciation Pauses

　　At the beginning of this week, the yen appreciated against the dollar to 143 yen per dollar but later fell back to the 145 yen range, failing to sustain the appreciation trend. This shift is closely linked to the performance of the euro.

　　Image Source: sohu

Reasons for the Yen's Slowed Appreciation

　　Despite the yen's strong initial performance, the euro's movements have influenced the market. On August 23, in the New York market, both the yen and the euro appreciated against the dollar, with the euro reaching its highest level since July 2023. This indicates that the market's focus shifted to Powell's remarks, leading to a weakening of the dollar due to anticipated rate cuts.

Impact of Monetary Policy Environments

　　To understand market dynamics more comprehensively, it's important to consider the monetary policies of the U.S., Japan, and Europe. Fed Chair Powell has forecasted a potential rate cut in September. Meanwhile, the Bank of Japan decided to raise rates at the end of July, with Governor Ueda suggesting that further rate adjustments might be considered if the economy evolves as predicted, leaving the possibility of additional rate hikes open. This policy environment has complex effects on the yen's exchange rate.

European Central Bank's Position

　　As for the European Central Bank (ECB), it decided to cut rates in June but kept them unchanged in July. ECB President Lagarde stated that the decision to cut rates in September would depend on the data, without making a firm commitment. However, market expectations for a September rate cut by the ECB are growing. Daiki Tanikawa from Mizuho Bank noted, “A September rate cut is almost a foregone conclusion,” due to easing wage inflation in the Eurozone.

　　Image Source: EBC

Market Expectations and Risks

　　At the Jackson Hole conference, ECB Governing Council member Olli Rehn mentioned that “if high rates persist for too long, there is a risk of falling below the price target,” highlighting the potential risks of excessive monetary tightening. Thus, market expectations and policy environments are shaping the current currency market trends.