US Dollar Expected to Stay Strong While Japan's Yen Struggles

The U.S. dollar is expected to stay strong for the next several months, while Japan's currency — the yen — continues to struggle. A new survey of about 60 currency experts, published by Reuters on August 5, found that efforts by Japan to boost the yen are not likely to work on their own. The experts say Japan's central bank will need to raise interest rates if it wants to make a real difference.

In recent days, Japan's government stepped in to support the yen by buying it in large amounts. This move, called a currency intervention, helped the yen rise about 4 percent against the dollar. However, the yen still could not reach the high point it hit during Japan's last major intervention back in May.

Nearly 95 percent of the experts surveyed said that these kinds of interventions, on their own, would not fix the yen's long-term weakness. Almost all of those experts agreed that Japan's central bank — called the Bank of Japan, or BOJ — would need to raise interest rates to truly turn things around. So far, the BOJ has been slow to raise rates, partly because Japan's economy is not growing very fast.

On the U.S. side, the American economy has been doing well, which is one reason the dollar has stayed strong. The U.S. Federal Reserve, which controls American interest rates, may need to act to keep prices from rising too fast. The dollar has already gone up about 2 percent this year, and experts think it could stay at that level for a while.

Kit Juckes, a top currency expert at Societe Generale bank, explained it this way: "I still have an underlying view the dollar will remain strong as long as the U.S. economy remains strong." He added that the dollar might not move dramatically in either direction, but could stay in a steady range or even climb a little higher depending on new economic data.

Forecasts show the yen, which is currently trading at about 158 yen per dollar, could weaken a little more over the next three months. After that, experts expect it to slowly gain strength, reaching about 154 yen per dollar within a year. Still, the yen has fallen about 30 percent against the dollar since early 2022 — a very large drop over just a few years.

Ales Koutny, a rates expert at the investment firm Vanguard, said that big government interventions in currency markets usually only work for a short time. "We have previously seen large-scale interventions produce meaningful moves for a matter of days or weeks rather than months," he said. He explained that for the yen to truly recover, several things would need to change, including Japan raising interest rates and energy prices coming down.

Derek Halpenny, a global markets expert at Mitsubishi UFJ Financial Group, added that the U.S. joining Japan in this latest intervention was an important development. He believes it may make traders less willing to bet against the yen going forward. However, he also thinks the intervention is likely over for now, and that lasting change will still require deeper economic shifts.