Russian Ruble vs. Japanese Yen: the Parity is Coming!

On an annual basis, the ruble has lost 57% against the dollar and 73% against the euro, and its precipitous decline continues. The main reason for ruble’s disgrace is the simultaneous reduction of exports amidst expansion of imports. Reduced export earnings and increased imports create an imbalance in the demand and supply of currency, while exporters are often reluctant to repatriate their hard currency proceeds. Although oil prices are increasing, it is not enough for ruble balance of trade’s stabilization. The ongoing correction in the ruble requires a drastic cut in Russia’s foreign purchases. In addition, ruble-denominated export contracts reduce foreign currency earnings.

In contrast, Japanese yen bulls even though initially in 2023 facing nothing but disappointment are finally eyeing gains as the prime Asian currency, which keeps climbing to its strongest in a month. Predictions for a 10% rebound in the yen as Japan loosens its ultra-loose monetary policy are yet to materialize, but there are growing signs that the currency is at an inflection point. Instead of changing their stance, some international investors began to diversify and increasingly pinned their hopes on a stronger yen on the onset of a global recession elsewhere.

Back to ruble, despite its astonishingly weak performance, in August the Russia’s Ministry of Finance announced its intension to resume the purchase of foreign currency and gold for oil and gas excess revenues – for the first time since January 2022. The Central Bank promises to allocate 40.5 billion for this purpose.

The more than 6.5-fold year-on-year decline in Russia's current account surplus in January-July suggests that one should be prepared for the fact that this vital economic indicator could potentially shrink further. Western sanctions raise insurance premiums, complicate export logistics, and generally reduce revenues from exports of goods.