Why is the Japanese yen hovering near three-month lows against the dollar

The Japanese yen is hovering adjacent three-month lows against the U.S. dollar, aft hitting 153.18 precocious Wednesday.

In the past, weakness successful the Japanese currency has been attributed to the quality betwixt the U.S. and Japanese involvement rates arsenic little rates thin to unit currencies, portion higher rates assistance them up. Japan had antagonistic rates for astir 8 years, keeping it's currency anemic compared to the dollar.

But with the Federal Reserve lowering rates and the Bank of Japan raising them, that complaint differential has narrowed. So wherefore is the yen depreciating now?

Alvin Tan, caput of Asia FX strategy astatine RBC Capital Markets said yen continues to beryllium the "lowest-yielding G10 currency by far." The G10 refers to the 10 astir heavy traded currencies successful the world.

Therefore, holding a agelong yen presumption is costly due to the fact that it offers a overmuch little involvement complaint than its counterpart successful a currency pair, which could beryllium the euro oregon the U.S. dollar.

"The annualised 1-month deposit complaint for yen is +0.03%, portion it is 4.76% for the U.S. dollar. That is wherefore the yen can't fortify consistently contempt the Fed (or ECB) cutting rates. The complaint differential against the yen is simply inactive excessively ample for galore investors to see holding it for a agelong period."

Homin Lee, elder macro strategist astatine Swiss backstage slope Lombard Odier told CNBC the caller volatility successful yen is besides apt owed to the marketplace repricing the instrumentality of erstwhile U.S. president Donald Trump to the Oval Office, coagulated maturation indicators successful the U.S., arsenic good arsenic worries astir the upcoming predetermination successful Japan.

He adds that continued volatile trading successful the currency brace "might not beryllium avoidable successful the precise near-term" owed to elections successful the U.S. and Japan.

However, immoderate further weakness successful the yen could trigger an involution again by Japanese authorities, Lee said, pointing retired that voters are inactive unhappy with the "extreme cheapness of the currency."

RBC's Tan thinks that planetary hazard sentiment needs to weaken sharply successful bid for yen to strengthen, saying "the yen benefits erstwhile planetary marketplace volatility spikes due to the fact that it is the apical harmless haven currency."

The yen tends to weaken against the greenback during periods of risk-off sentiment — erstwhile U.S. yields emergence portion equities autumn — Hugh Chung, main concern advisory serviceman astatine wealthiness and money level Endowus told CNBC earlier this twelvemonth in the aftermath of a volatile yen.

U.S. yields person so been rising, portion stocks have taken a beating implicit the past fewer days, which appears to person triggered much than 1% depreciation successful the currency connected Wednesday.

The yen was past trading astatine 152.82 against the dollar.