Yen Gains While Japanese Stocks Down

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Yen Gains While Japanese Stocks Down

Yen Gains While Japanese Stocks Down By 3% On Rate Cut Hopes

The Japanese stocks have maintained a bearish outlook on Monday while the Japanese Yen (JPY) is sitting at a 1-month high. All of this is happening due to the media reports that yield curve control will come to an end starting next week.

If this happens, it will be the end of years of ultra-loose monetary policy, and the BoJ will turn from dovish to hawkish.

After the news, the Nikkei 225 turned negative and lost around 3% of its value on Monday. At the same time, the Yen (JPY) gained 0.2% against the greenback and is close to touching monthly highs.

An End Of Ycc In Sight

If we look at the TOPIX stock index, which provides a broader outlook of the Japanese stocks, it is also down by 3%. To conclude, the overall trend seen in Japanese stocks is bearish, as investors are fearful that decades of low rates are finally coming to an end.

If the bank actually ends the YCC, then it will be the first rate hike ever in more than a decade, as the last rate hike was done in 2007. The reason behind the proposed end of YCC is the forecasted increase in wages.

It appears that higher wages will allow the Japanese consumers to spend more money, which will boost the demand. As a result, the BoJ will have to get ready for higher inflation and increased consumption before it becomes a big problem.

It's been more than a decade now that Japanese businesses have been enjoying negative interest rates. If we look back, the rally seen in the Nikkei during 2023 and 2024 was mainly driven by a dovish BoJ.

hawkish BoJ will be beneficial for the Yen, but the opposite will be true for Japanese stocks, which are still trading at historic highs. For now, the JPY is trading near 147 against the greenback and is also bullish against other currencies.

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