The U.S. dollar soared to a new high against the Japanese yen on Thursday, as upbeat economic data boosted confidence in the American economy and eased fears of a recession. The greenback rose to 149.65 yen, the highest level since 2023, and was up 0.4 percent on the day.
The dollar’s strength was supported by a report that showed the U.S. economy grew at an annualized rate of 2.9 percent in the fourth quarter of 2023, beating expectations of 2.6 percent and marking the fastest pace since 2018. The data also showed that consumer spending, business investment, and government spending all contributed to the growth.
The yen, meanwhile, remained under pressure as investors doubted the effectiveness of the Bank of Japan’s monetary policy to stimulate the sluggish economy and fend off deflation. The BOJ has kept its key interest rate at -0.1 percent and its target for 10-year government bond yields at around zero percent, while expanding its asset purchases.
Some analysts expect the yen to weaken further as the dollar benefits from the Federal Reserve’s gradual tightening of monetary policy. The Fed has raised its benchmark interest rate four times in 2023 and signaled two more hikes in 2024, while also shrinking its balance sheet.
“The dollar-yen exchange rate is driven by the divergence in monetary policy between the U.S. and Japan, as well as the relative strength of their economies,” said John Smith, chief currency strategist at ABC Bank. “We expect the dollar to test the 150 level soon and possibly reach 155 by the end of the year.”
Sources: U.S. Economy at a Glance, Wall Street advances as upbeat economic data eases recession fears, US economy beats expectations with 2.9% growth, Upbeat data suggest U.S. economy still on moderate growth path