Japanese Yen: Heading back toward 160 against US Dollar – Commerzbank

Volkmar Baur at Commerzbank notes that the Japanese Yen has weakened again above 159 per Dollar despite recent intervention and Bank of Japan signals. He argues JPY is fundamentally too weak, with strong current account and credit data, but rising Japanese equities and associated hedge adjustments may keep JPY under pressure until the Bank of Japan clarifies its rate-hike plans.

Fundamentals strong but pressure persists

"Speaking of intervention, the Japanese yen rose above 159 against the U.S. dollar again yesterday, indicating that it has weakened once more in recent days. This was to be expected."

"Following the Bank of Japan’s meeting, we had already noted that the Bank of Japan would need to send clearer signals that it is considering raising interest rates more quickly than it has so far."

"Governor Ueda did give subtle signals during his press conference. And the “summary of opinions” released yesterday also contains indications that the bank could raise interest rates more quickly. However, the market still seems to find this somewhat insufficient."

"According to a survey by the Japan Exchange Group, around 35% of Japanese stocks are now held by foreign investors. Since these Japanese stocks are largely held in currency-hedged positions, rising stock prices (the Nikkei is up 35% this year) require corresponding adjustments to currency hedges, which tends to weigh on the JPY."

"While this is likely not the main reason, it could also contribute to the JPY coming under pressure again in the coming weeks until the Bank of Japan clarifies its plans more clearly."

"We remain convinced that the Japanese yen is currently trading too weakly and should be somewhat stronger on a fundamental basis. This was evident again yesterday in robust figures for the current account and credit growth. At the same time, days like yesterday show that rising stock prices can contribute to a weakening of the currency."

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