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Carlyle Says Worst of Yen Losses Over With Peak Dollar

(Bloomberg) -- The worst of the yen’s losses appears to be over, with the dollar likely peaking as the Federal Reserve slows its pace of rate hikes, according to Jason Thomas, head of global research at the Carlyle Group Inc.

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The Fed is expected to raise interest rates by 50 basis points in December, and follow with a couple of smaller increases before pausing some time before the end of March, Thomas said in an interview in Tokyo on Thursday. The yen may then strengthen beyond 130 against the dollar and even approach 125 next year if projections for slower hikes become a widely-shared view, he said.

Carlyle’s comments come amid diverging views among investors on whether the dollar is peaking, with currencies rebounding against the greenback in the past month as US inflation shows signs of slowing. The yen has slumped almost 18% this year, and is the worst-performer among the Group-of-10 peers.

Investors positioned for a strong dollar with leveraged bets will need to unwind positions when an end to the Fed’s hiking cycle comes into view, causing “very large adjustments the other way,” Thomas said. “Currencies can move very rapidly in the other direction -- that is a realistic, potential outcome for the first quarter of 2023.”

A 50 basis-point hike in December accompanied by hawkish rhetoric may end up pushing the yen past its three-decade low of 151.95 against the dollar. After that, the Japanese currency is more likely to strengthen, based on his views for the Fed, Thomas said.

The yen gained 0.2% against the dollar to 139.90 on Friday.

Japanese households, financial institutions and businesses are also nearing a point where they will find the value of their foreign assets too high relative to domestic prices, triggering repatriation and buoying the yen, Thomas said.

“There is more upside for the yen than the downside,” he added.

(Corrects company name in third paragraph)

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