Traders are betting that the yen could rise after the BOJ policy change

Traders believe and expect the yen could rise another 10% after the BOJ’s policy change sparked speculation that it was finally abandoning its ultra-dove monetary settings.

The yen could rise to 120 per dollar or higher. Also according to other forecasts, the actions of the Bank of Japan will cause a wave of hedging by foreign funds, which could lead to a rise in the currency next month.

The yen climbed 4.8% on Tuesday after the Bank of Japan raised the yield limit on 10-year bonds to 0.5% from 0.25%. Trading activity picked up after the currency had already risen from more than a three-year low in October when the market cut bets on the Federal Reserve’s rate hike.

For now, the yen remains fundamentally fairly cheap, and the dollar-yen could settle closer to 120 or even lower if the Fed starts cutting rates in late 2023 and 2024.

The yen fell slightly on Wednesday, shedding 0.3% to 132.06 per dollar after hitting 130.58 on Tuesday.

Schroders Plc is buying the yen and shorting Japanese government bonds, expecting a rate hike from the Bank of Japan to be only a matter of time. PineBridge Investments and Fidelity International also expect the currency to rise.

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Some analysts believe that the yen could become one of the strongest currencies next year, rising to 120, while others think that the currency will strengthen but not so high.

The yen edged higher on Tuesday, even as Japanese bond yields remain well below US yields.

In the near future, the currency’s appreciation will not continue unless the Bank of Japan raises interest rates, as this will mean that the yield spread will remain relatively wide. The market may also be ahead of itself in estimating the Fed’s rate cut next year, given the US Central Bank’s scatter plot.

Some traders and investors are revising their forecasts for the yen to reflect market bets that the Bank of Japan will hike rates next year.