'Can't see an inch ahead' Japan on high alert... What on earth is happening

Yen value hits new low against the Swiss franc

Also approaching record lows against the euro

Stable only against the dollar amid expectations of U.S. rate cuts

Shows yen carry trade trends

Remittances from foreign banks' Japan branches to their home offices

January–July ¥12.7 trillion…largest since 2008

Japan's real interest rate plunges into negative

Political uncertainty increases

Selling pressure on the yen grows

The yen's decline against various currencies is becoming clear. The yen hit an all-time low against the Swiss franc and is also nearing record lows against the euro. The background includes Japan's real interest rate falling into negative territory and political uncertainty. There are also views that global hedge funds and others may resume the "yen carry trade," which accelerated the weak-yen trend through the first half of last year.

According to the Nikkei on the 23rd, the yen-franc exchange rate briefly rose to the 187 yen-per-franc level on the 18th (yen depreciation), marking a record high. The record has continued to be broken since September. The same applies against the euro. On the 19th in the foreign exchange market, the yen-euro rate rose to the mid-174 yen-per-euro level, coming close to last July's record high (mid-175 yen per euro).

The yen's value also fell to yearly lows against the British pound, Brazilian real, and Mexican peso. It is only stable against the dollar, as the dollar has weakened on expectations of a U.S. policy rate cut within the year. The Nikkei pointed out, "The yen is holding steady against the dollar, but it continues to fall against many currencies other than the dollar."

One factor counted among the selling pressures on the yen is the yen carry trade. The yen carry trade is a trading technique in which low-yielding yen is borrowed and sold to buy relatively higher-yielding currencies to seek profit. It was the cause of last year's historic yen depreciation, when the dollar-yen rate soared to the high 161 yen-per-dollar range for the first time in about 37 years in July last year. At the end of July last year, with the Bank of Japan's additional policy rate hike, yen short positions were rapidly unwound and the yen carry trade disappeared thereafter.

However, the yen carry trade has recently been gaining popularity again. One indicator showing this is the 'head-office/branch account,' which indicates how much foreign banks' Japan branches have remitted to their home headquarters. According to Bank of Japan statistics, it increased to a monthly average of ¥12.7178 trillion in January–July this year, the largest level since 2008 (¥14.1361 trillion).

Japan's real interest rate, which reflects the inflation rate in the policy rate, has been falling. It fell to -2.2%. Political uncertainty also remains. In fact, after the ruling Liberal Democratic Party (LDP) presidential election that effectively selects the next prime minister, the political situation is difficult to predict. Analysts say the view that, whoever wins, the LDP being a minority ruling party will have to join forces with opposition parties demanding 'fiscal expansion' is acting as a reason for selling the yen.

If expectations for an additional Bank of Japan policy rate hike strengthen, it could be a headwind against yen selling. Market participants expect the Bank of Japan could raise the policy rate as early as October. However, some analysis says the weak yen will persist unless the Bank of Japan raises the policy rate enough to significantly reduce the negative real interest rate.

Tokyo = Ilgyu Kim, correspondent black0419@hankyung.com