【Japanese Yen Fixed Deposit】Citibank expects Japan to raise interest rates only in July; Japanese Yen fixed deposit interest rates up to 0.8%

Next Thursday (March 19) is “Super Thursday,” when the Federal Reserve announces its interest rate decision. On the same day, Europe, the UK, Switzerland, and Japan will also hold monetary policy meetings. Despite facing the “black swan” event of the Middle East crisis, major American banks maintain their forecast that Japan will only raise interest rates in the second half of the year, and that the Japanese stock market will challenge the record high of 63,000 points by year-end.

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Citi’s investment strategy and asset allocation chief, Liao Jiahao, indicates that Japan is unlikely to raise interest rates this time, and is expected to do so only in July by 25 basis points. Citi analysts anticipate that when the USD/JPY approaches 160, the Japanese government will intervene in the market to buy yen, and they believe that in the short term, USD/JPY will stay within the 155-160 range; by the end of the year, USD/JPY could fall below 145.

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HSBC and Citi both expect Japan to raise interest rates only in July, while Goldman Sachs and other Wall Street firms predict the yen could reach 160, prompting central bank intervention to defend the currency. Market rumors suggest that before Japan’s general election, the New York Fed may have conducted a “rate inquiry” when the yen hit about 159, indicating U.S. support for Japan to defend the yen.

Expert Yen Forecasts:

• Liao Jiahao from Citi: Yen forecast for 3 months is 152, for the next six months and one year is 145; long-term target is 135. The yen is recommended to be bought on dips. Resistance for USD/JPY remains between 158 and 160, with multiple attempts to break above 158 recently unsuccessful. Although Japan is one of the world’s largest energy importers, its ample oil reserves (enough for 250 days of domestic demand) may reduce oil price pressures. The Bank of Japan’s potential intervention when USD/JPY reaches 160 could limit the yen’s depreciation. Short-term, USD/JPY may fluctuate between 155 and 158, with a worst-case scenario of rising to around 160, but the overall trend suggests a fall back to around 145 by year-end. The recent stability of Japan’s ultra-long-term government bond yields indicates the market is not worried about oil prices dragging down Japan’s economy or trade balance, so buying yen around 158 could be considered.
• OCBC Hong Kong economist Wang Hao-ting: Market concerns about escalating Middle East tensions could disrupt global energy supplies, increasing inflation risks. As Japan relies heavily on energy imports, rising oil prices tend to weaken the yen. In the short term, investors should monitor energy prices and risk appetite, as well as potential central bank interventions and deleveraging amid market volatility. Finance Minister Shunichi Suzuki has warned that Japan is closely watching financial markets and is prepared to intervene in forex if necessary, temporarily pushing the yen above 157. However, the yen is expected to remain weak in the short term, with 160 providing some support. Over the next two weeks, the yen may range from 156 to 158.41 (about 4.9367 to 5.0129 HKD per 100 yen); mid-year target is 151, and year-end around 149 (about 5.2332 HKD per 100 yen).
• MUFG: The Bank of Japan has about a 70% chance of raising interest rates at the April meeting.
• Former BOJ official Makoto Sakurai: If the yen continues to weaken before the March US-Japan summit, the BOJ may raise rates as early as March 18-19. It is expected that the BOJ will hike twice this year and next.
• Technical levels: USD/JPY hit a low of 157.98 on Tuesday (March 3), breaking the February 9 low of 157.74 but failing to breach 158. It has since turned upward, with RSI and stochastic indicators suggesting a higher probability of bottoming out. Key resistance is at 156.4, with a critical level at 152.5.

Hang Seng short-term deposit at 8% high interest matures at the end of this month

Japan raised interest rates by 0.25% at the end of last year, with the current policy rate at 0.75%. HSBC and Citi both expect rates to remain unchanged until the second half of the year. Fortunately, China Minsheng Bank has preemptively increased yen fixed deposit rates against the trend, with a slight rise of 0.05%, now at 0.16% for six months and one year, making it the “long-term king.”

Although yen fixed deposit rates are not high, traditional and digital banks are entering the market. ZhongAn (ZA Bank) offers a 1-month annual interest rate of 0.001%, and WeLab Bank offers 0.01% for the same term, replacing the previous dominance of Standard Chartered Hong Kong (02888), ICBC Asia, CCB Asia, HSBC International, Nanyang Commercial Bank, and others. Note that the city’s top 7-day annual interest rate of 8% at Hang Seng will expire at the end of March.

High interest rates reportedly pressure the Bank of Japan to refuse further rate hikes

Additionally, the main reasons for the continued weakness of the yen are summarized as four:

• (1) Rising oil prices threaten economic recovery: On February 28, the US-Iran conflict began, raising concerns about oil price runaway.
• (2) Dovish members join the BOJ: On February 25, USD/JPY weakened to 156.83 after Hitoshi Highashi nominated two new BOJ members (Ichiro Asada and Ayano Sato), both considered dovish. Highashi favors re-inflation policies, increasing resistance to normalizing monetary policy. However, Citi believes that Japan’s relatively high inflation and weak yen environment make it difficult for new BOJ members to push for re-inflation, so their nominations are unlikely to change the long-term yen trend. BOJ board member Takada Sōichi stated on February 26 that, given the global economic recovery, the BOJ should shift its communication to suggest that Japan’s inflation target has been largely achieved, and focus more on preventing upward price risks, maintaining a hawkish stance that called for continued rate hikes last month.
• (3) Allegations that Highashi pressures the BOJ to avoid further hikes: On February 24, USD/JPY suddenly plunged 1.1% to 156.28 (approaching 5 HKD per 100 yen), even falling below 156 at one point. The Japanese media quoted sources saying that Highashi met with BOJ Governor Ueda Kazuo for about 15 minutes on February 16, expressing a desire not to hike rates further (she reportedly showed reluctance). Yet, the BOJ signaled the need for additional rate hikes to normalize finance and counter yen depreciation. Nonetheless, given her landslide victory in the Lower House elections, solidifying her ruling base, the BOJ may have to make tough decisions.
• (4) Japan’s high debt levels: Japan’s government debt-to-GDP ratio, which peaked around 245% in 2020, has since declined slightly but remains just below 200%, the highest among developed countries. Highashi proposed a fiscal stimulus package totaling 21.3 trillion yen but refused to significantly tighten monetary policy. While this benefits the stock market, it has led to selling of the yen and Japanese bonds. Market fears of uncontrolled fiscal expansion caused 40-year Japanese government bond yields to spike to a record 4.19%. Despite Highashi’s repeated assurances to maintain fiscal discipline and avoid debt-financed measures for the approximately 5 trillion yen annual consumption tax cuts, some external funds remain cautious.

US reportedly inquiring about yen exchange rate in January, preparing joint intervention

Additionally, rumors suggest that the New York Fed conducted a “rate inquiry” on January 26 after the BOJ’s rate decision, when the yen hit about 159, to support the yen.

The Nikkei reports that U.S. officials indicated that the U.S. government actively engaged in “rate inquiries” to support the yen and is prepared to jointly intervene if Japan requests.

Sources say that the rate inquiry, led by the New York Fed on behalf of the U.S. Treasury Secretary Bessent, was conducted without a formal request from Japan’s Ministry of Finance, due to concerns over political uncertainty before Japan’s elections, which could cause market turmoil and affect global financial markets.

The U.S. intervention in the forex market, as a preliminary step to buying yen, reflects the willingness to use economic power to stabilize allied countries. If Tokyo requests, the U.S. may consider intervening to support the yen.