Japanese Yen: On the turn with policy support – Rabobank

Rabobank's RaboResearch Global Economics & Markets’ FX Strategy team discusses the Japanese Yen’s (JPY) recent outperformance and potential medium-term improvement. The report highlights official FX intervention, resistance around USD/JPY 158.70, and expectations that stronger wages, possible BoJ tightening and changing JGB demand could support the JPY. The authors see scope for USD/JPY to drift lower over the coming months.

Yen outlook tied to BoJ and JGBs

"The JPY is the second best performing G10 currency in the half year to date. Admittedly, this strong ranking has been obtained with the support of sizeable FX intervention over 3 days during the summer, which included joint support with the US Treasury. That said, the JPY has managed to outperform the USD on a 1-month view with the market displaying a clear reluctance to push USD/JPY above the 158.70 area which coincides with the 200-day sma."

"While the sell-off in the Nikkei 225 at the end of last week depressed market expectations regarding the chances of a December BoJ rate hike, the strength of September wage data supports the potential for further policy tightening both next month and into next year.

"In our view, this suggests USD/JPY can edge lower to the 155.00 area on a 3-month view. Another component of any JPY turnaround would likely be a more robust tone in the JGB market."

"This could contribute to a more supportive backdrop for the JPY in the months ahead."

"Q3 GDP data and October national CPI inflation, both due next week, will be of interest to BoJ watchers. We remain cautiously optimistic on the medium-term outlook for the JPY."

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