Recently, there has been a 'flight from yen deposits.' This is interpreted as a result of expectations that the rise in the value of the yen will be limited since the Bank of Japan (BOJ) has frozen interest rates for the third consecutive time last month. Japan ended the 'negative interest rate' era by raising interest rates for the first time in 17 years last year. Yen deposits are products that allow individuals to exchange won for yen and deposit them. If the value of the yen rises, one can earn exchange rate gains.
According to the financial sector on the 7th, as of the 3rd, the balance of yen deposits at the five largest banks, including KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup, was recorded at 1.2 trillion yen. This is a slight increase from the end of last month, when it recorded around 900 billion yen, but it is nearly 8% lower than the 1.1 trillion yen recorded at the end of November. Compared to 1.2929 trillion won in June last year, the deposit balance has decreased by nearly 21% in six months.
The balance of yen deposits significantly increased amid the 'YenTech' (yen + asset management) boom from 2023 to last year. At that time, the value of the yen fell below 900 won per 100 yen, hitting its lowest level in 33 years. The won also showed strength, dropping to 856.8 won against the dollar. The average exchange rate of the won against the yen over the past 10 years was around 1,014.3 won per 100 yen.
The market perceives limited upside for the yen and an increase in profit-taking demand. Japan raised interest rates last year, ending the 'negative interest rate' era. In July last year, it raised the benchmark interest rate to 0.25%, but after three consecutive freezes, speculation arose at the end of last year that the Bank of Japan would be cautious about further rate hikes, leading to increased selling pressure.
Kazuo Ueda, the Governor of the Bank of Japan, noted, regarding the overseas economic situation, "The outlook remains uncertain. The uncertainties regarding the economic policies of the incoming Donald Trump administration in the United States are significant," suggesting a cautious approach to raising interest rates. Expectations are emerging that the value of the yen may rise more slowly due to the delayed pace of Japan's tightening.
Moreover, it appears that the decline in the value of the won due to domestic political circumstances has also played a role. The value of the yen, which fell below 900 won per 100 yen last month, increased to the 970 won range amid political instability, which included the declaration of a state of emergency and the impeachment crisis.
The additional upward trend of the yen is expected to be constrained for the time being. This is because forecasts suggest that the United States will lower its policy interest rate more slowly and slightly than expected due to concerns about rising prices, potentially leading to continued weakness in the yen. In fact, in the Tokyo foreign exchange market, the yen's exchange rate against the U.S. dollar slightly fell last month as U.S. long-term interest rates rose. As of the 6th, the yen-dollar exchange rate slightly increased compared to the end of last month, but there is a prevailing view that further gains are constrained.