Japanese Yen: Policy-regime shift backs JPY against US Dollar – DBS

Philip Wee at DBS Group Research highlights a growing policy-regime change advantage for the Japanese Yen (JPY) versus the US Dollar (USD). Following joint US-Japan intervention and expectations of further Bank of Japan (BoJ) tightening, speculators have unwound short JPY positions. Political backing for structural reform and room for BOJ normalization underpin a hawkish rate hike scenario later in September.

BoJ tightening supports Yen

"If the EUR has a credibility advantage, the JPY has a policy-regime change advantage."

"Speculators have unwound their short JPY positions following July’s joint US-Japan currency intervention and a shift in expectations towards further Bank of Japan tightening."

"By implicitly pushing back against Prime Minister Sanae Takaichi’s fiscal instincts, Bessent gave the BOJ greater political room to normalize interest rates."

"Bessent also helped recast “Takaichinomics” away from being Abenomics 2.0, from reflation towards deregulation, investment, and shareholder-friendly structural reform."

"Even former BoJ-tightening sceptics – including Takuji Aida, an economic adviser to Takaichi and a former vocal opponent of BOJ tightening – are now acknowledging the case for higher rates, strengthening expectations for a hawkish hike on September 18."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)