NZD and JPY in 2024: A Tale of Divergence United at the Bottom of the Currency Rankings

The currency market in 2024 presented an unusual twist with the New Zealand dollar (NZD) and Japanese yen (JPY) ending the year as the two worst-performing major currencies.

Historically occupying opposite ends of the spectrum—NZD as a high-yielding, risk-sensitive currency and JPY as a low-yielding safe-haven asset—their tandem underperformance underscores the complexity of the global economic and monetary landscape this year.

The US Dollar Dominates

Both currencies fell victim to the unrelenting strength of the US dollar, which posted an 11.6 percent gain against each. The dollar’s ascendancy was fueled by the Federal Reserve’s later-than-expected pivot to rate cuts, with markets pricing in minimal additional easing. Meanwhile, robust US economic data bolstered the greenback as global growth concerns weighed on risk-sensitive and safe-haven currencies alike.

NZD/JPY: A Volatile Year

The NZD/JPY pair encapsulated much of the broader market’s uncertainty. The pair experienced a steady climb from May to mid-July, reflecting optimism around global growth and expectations for higher yields in New Zealand.

However, the rally abruptly reversed as fears of a global economic slowdown intensified. A sharp three-week selloff in NZD/JPY served as a harbinger of broader market turmoil, preceding declines in US equities and other risk assets by about a week.

While the initial panic suggested significant economic pain on the horizon, the reality proved less severe. Central banks, including the Federal Reserve, adjusted their policies with measured rate cuts, stabilizing market sentiment. Despite this, NZD/JPY struggled to regain its footing fully, reflecting lingering uncertainties and a lack of sustained catalysts for either currency.

China’s Mixed Signals

China’s economic trajectory added another layer of complexity for both NZD and JPY. For the New Zealand dollar, China’s sluggish recovery and inconsistent stimulus efforts weighed heavily. As one of New Zealand’s largest trading partners, China’s economic health significantly influences the NZD. While sporadic stimulus measures provided temporary boosts, the lack of a cohesive strategy left markets unimpressed and the NZD vulnerable.

For the yen, the story was more about external pressures than domestic resilience. Japan’s economy faced challenges, but the yen’s underperformance was exacerbated by widening yield differentials with the United States and other economies. The Bank of Japan maintained its ultra-loose monetary policy, leaving the yen susceptible to outflows as investors sought higher returns elsewhere.

Looking Ahead to 2025

As NZD and JPY seek to recover from their challenging year, several themes will shape their trajectories in 2025. For the New Zealand dollar, the focus will be on China’s ability to deliver consistent economic growth and stimulus. Additionally, the Reserve Bank of New Zealand’s monetary policy stance will play a critical role in determining whether the NZD can reclaim its high-yield appeal.

For the yen, the narrative hinges on the Bank of Japan’s policy direction and global risk sentiment. Any signs of normalization from the BOJ could provide support for the yen, while persistent safe-haven demand might offer relief if global uncertainties resurface.

Conclusion

The shared underperformance of NZD and JPY in 2024 serves as a reminder of the interconnectedness of global markets and the shifting dynamics that can upend traditional currency relationships. As markets transition into 2025, the interplay of monetary policy, geopolitical developments, and economic data will dictate whether these two currencies can rebound or remain under pressure in the evolving financial landscape.