Japanese Yen: Policy scenarios favor stronger JPY against US Dollar – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that USD/JPY briefly hit a seven‑month low near 152.89 before rebounding above 154.00, with support around 152.00 and resistance at 155.00. He argues the recent Japanese Yen (JPY) strength is flow-driven rather than a hawkish Bank of Japan (BoJ) repricing. Haddad outlines Fed–BoJ scenarios skewed toward further Yen gains and notes a potential 50 bps BoJ hike that could turbocharge the Japanese Yen recovery.

Flows and BoJ risks back Yen

"USD/JPY dropped briefly to a seven-month low at 152.89 before rebounding above 154.00. The next support sits near 152.00, the January-February double bottom, while resistance is offered at 155.00."

"JPY’s recent overshoot has come despite no meaningful hawkish BoJ repricing and a modest pullback in longer term JGB yields. This points to a flow driven JPY rally, supported by possible repatriation flows by Japan’s government pension fund (GPIF), and amplified by an unwind of speculative net short JPY positions."

"The sustainability of the USD/JPY plunge hinges on next week’s Fed and BoJ rate decisions. We see four scenarios, with the risks skewed towards a stronger JPY: Fed hold, BoJ +25bps: USD/JPY down. Fed hold, BoJ +50bps: USD/JPY sharply lower. Fed +25bps, BoJ +25bps: USD/JPY rebound. Fed +25bps, BoJ +50bps: USD/JPY down."

"Japan’s July wage data was mixed. Total nominal wage growth quickened more than expected to 4.7% y/y (consensus: 3.8%) vs. 4.0% in June, the fastest pace since 1997. However, the less volatile scheduled pay growth for full-time workers unexpectedly slowed to 2.7% y/y (consensus: 2.9%) vs. 2.9% in June."

"In our view, a jumbo 50bps BoJ hike next week cannot be ruled out. Inflation expectations account for most of the rise in 10-year JGB yields. A larger hike could re-anchor inflation expectations, cap the long end of the curve, and turbocharge the JPY recovery."

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