EBC Markets Briefing | Yen falls amid capital outflow pressures

The yen fell on Monday after Japan's top central banker flagged further policy tightening ahead but left open the question of timing, leaving the market no clearer on whether a move would come next month.

Kazuo Ueda reiterated that interest rates would continue to rise gradually should the economy develop in line with expectation. He said the US will likely achieve a soft landing given recent positive data.

The yen rallied to a 14-month high against the dollar in September as traders unwound yen-funded carry trades, but has since weakened significantly and was at its lowest since July on Thursday.

Market watchers see the still-wide yield spreads between the nation and the US as a main driver of the pair, especially given likely inflationary policies from President-elect Donald Trump.

Japan reported a ¥8.97 trillion current-account surplus in Q3, but this was outweighed by direct and portfolio investment outflows. Meanwhile, direct investment is among the lowest of major economies.

The economy grew 0.2% in the fiscal second quarter, marking the second straight quarter of expansion. Weak recovery coupled with political fray support the case for a deepening of capital outflows.

The yen’s downtrend is evident in the chart, with the low around 156.80 per dollar acting as potential support. A push below the level could lead to 160.00.

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