Japanese Yen: Structural support but near-term capped – Commerzbank

Commerzbank’s Volkmar Baur notes that revised expectations for further Federal Reserve (Fed) hikes and parallel Bank of Japan (BoJ) moves limit near-term upside for the Japanese Yen. Policy risk is seen shifting towards Japan due to upcoming BoJ board appointments.

Limited upside before longer-term recovery

"This reassessment of our US central bank expectations naturally impacts our forecast for the Japanese yen as well. Our economists no longer expect the US central bank to halt its interest rate hikes in December. Instead, they have factored in a further rate rise by the Fed in March."

"While we also expect the Bank of Japan to implement two further rate rises - in December and in spring next year - this no longer favours the Japanese yen. Rather, it signals a convergence between the central banks, which will likely have little impact on the currency."

"Consequently, we see little potential for the Japanese yen in the near future. In recent days, the yen has already weakened slightly due to rising market expectations regarding the Fed, and is currently trading just below USD-JPY 160. By the middle of next year, we now expect only a slight appreciation towards 155."

"In the longer term, however, we continue to expect the JPY to strengthen. The structural shift in Japan’s interest rate landscape means that domestic bonds are once again significantly more attractive, particularly for Japanese investors."

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