Potential devaluation of the yuan could significantly influence Asian currencies, particularly impacting the Bank of Japan's policies. China's strategy aims to counteract U.S. tariffs.
Trade War's Impact on Japan
There is a possibility that Beijing might lower the yuan's value to 7.5 per dollar to mitigate the effects of U.S. tariffs. In this case, the yen, already under pressure, could weaken further to 156 per dollar.
BOJ Faces Tough Decisions
Ahead of the December 18-19 meeting, the Bank of Japan faces a complex situation. Inflation in Japan has exceeded the 2% target for more than 30 months, yet declining consumer spending remains a concern. According to the latest Reuters poll, 54% of economists expect no change in rates, although the timing for action remains uncertain.
Yen's Volatile Journey
The year 2024 has been especially challenging for the yen. The rate hike in July prompted a surge that rattled markets. MUFG Bank indicates a 77% likelihood of no action in December, yet the Bank of Japan may abruptly shift if the yen depreciates quickly.
With the potential weakening of the yuan, the timing is critical for the Bank of Japan to move strategically. The situation calls for careful assessment of economic conditions and their impact on international financial markets.
