Japan Raises Interest Rates for the First Time in 17 Years: Is Now the Time for ‘YenTech’?

Japan Raises Interest Rates for the First Time in 17 Years
Yen Continues to Weaken
Interest in ‘YenTech’ Grows

The Bank of Japan, the country’s central bank, has made a historic move by raising its policy interest rate for the first time in 17 years since February 2007.

In traditional economic theory, a rate hike typically strengthens the domestic currency. However, despite this decision, the yen shows signs of weakness.

Following the announcement of the rate hike on the 19th, the dollar-yen exchange rate surpassed 150 yen, reaching 150.68 yen. As of noon on the 20th, it has weakened at 151.28 yen. Meanwhile, the exchange rate set by banks in our country remains in the 800s, with 884.81 won per 100 yen.

This has left investors in ‘YenTech’ (a blend of yen and wealth management) at a crossroads, unsure whether to sell their yen holdings or acquire more.

The decline in the yen’s value has been significant, particularly towards the end of 2022, amidst the ‘King Dollar’ phenomenon, where major currencies depreciated, including the Japanese yen. During this period, the yen hovered around 135 yen per dollar, a level not seen since the foreign exchange crisis 1998, marking the lowest figure in about 24 years. Even domestically, the exchange rate has remained in the early to mid-800s for nearly a year after that.

This has piqued the interest of many investors in ‘YenTech.’

According to data from the four central commercial banks—KB Kookmin, Shinhan, Hana, and Woori Bank—the amount of yen exchanged increased by 7.32 billion yen to 30.167 billion yen in May last year, up from 22.839 billion yen in April. This reflects a 4.8-fold increase compared to the same month of the previous year, which was at 6.285 billion yen.

Many investors have also turned to yen deposits, a strategy to profit by exchanging won for yen when the yen’s value declines and then selling when it appreciates, thus realizing exchange gains. According to recent data released by the Bank of Korea, as of the end of February, yen deposit balances reached $9.86 billion, nearing the $10 billion mark.

Exchange Traded Funds (ETFs) that invest in U.S. Treasury bonds using yen have also gained popularity.

Considering these factors, is it the right time to enter YenTech?

Experts suggest exercising caution as products linked to exchange rates carry significant risks.

However, they anticipate long-term strengthening of the yen. With the U.S. Federal Reserve’s impending interest rate cut, the strong dollar is expected to weaken, leading to a rise in the yen’s value. Nonetheless, given the uncertainty surrounding the timing of the U.S. benchmark interest rate cut, any yen appreciation is expected to be gradual.

They also suggest that the current period presents an opportune time for yen wealth management, given the yen’s expected continued weakness in the near term.

Investors who came across the news shared reactions such as: “I currently hold 200,000 yen. Although tempted to travel to Japan, I plan to exercise patience and wait,” “Once considered an adversary, Japan now seems like a neighboring country to me. I hope the yen strengthens,” and “Is it a good time to make purchases now?”

Meanwhile, Japan has maintained an ultra-low interest rate policy since introducing negative (-) interest rates in 2016. The aim was to encourage commercial banks to lend at low interest rates rather than depositing excess funds at the Bank of Japan. Japan has grappled with deflation and economic stagnation during this period.

The recent rate hike from 0 to 0.1% is seen as a move to stimulate Japan’s overall demand, departing from the ultra-low interest rate policy.