The year was quite active for the yen, and next year looks to be full of volatility. In 2022, the majority of the year was dominated in part by a weakening Japanese yen. Central banks around the world increased rates while the BOJ continued its extraordinary easing.
The yen became so weak that Japan’s government intervened and ordered the BOJ to intervene on at least two occasions to stop it from falling. It was widely speculated that the BOJ or the Fed would collaborate to stop the currency’s slide. The situation stabilized. The Fed began to see signs of inflation rising and that it was nearing the end its hiking cycle.
The shock that continues to reverberate
The BOJ stunned markets with its decision to increase the yield curve control corridor. This effectively allowed bond rates to rise. It was close to the end of the year. The dollar-yen experienced its largest fall in over a decade. The BOJ argued that it was a technical adjustment, and it didn’t amount to a change in policy.
However, Japan has long had negative rates, so the slight change was seen to be a prelude to the events that could take place in 2023. This was the biggest driver of strength for the yen and could be the theme of the future…