Japanese Yen: OCBC highlights growing appeal as a hedge against US Dollar

The Japanese Yen (JPY) is regaining appeal as a portfolio hedge, according to OCBC’s Sim Moh Siong and Christopher Wong. As AI-related market risks shift, concerns over AI have subsided. However, US-centric risk aversion is seen as providing less consistent support for the Dollar, enhancing the JPY’s appeal as a hedge. The analysts expect rates to remain unchanged at the Fed, BoJ and ECB. A hawkish hold by the Fed could leave a December hike on the table.

Yen returns to favour as a portfolio hedge

"AI concerns have eased, but the JPY’s return as a portfolio hedge is worth watching. It is too early to call an AI bust. Investors will increasingly demand stronger revenues and cash flow to justify higher capex, but for now the jitters look more like noise than a sustained reversal."

"We expect the Fed, BoJ and ECB to hold this week. For the Fed, the key question is whether the AI-led sell-off materially tightened financial conditions. We doubt it changes the policy path."

"A hawkish October hold should keep a December hike in play, particularly with energy prices adding to upside inflation risks."

"USD support remains intact, but US-centric risk-off is becoming less reliably USD-positive. That makes the JPY increasingly attractive as the cleaner hedge."

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