Japanese Yen: Focus on structural outflows and intervention – MUFG

USD/JPY may be approaching a turning point, according to MUFG’s Derek Halpenny. Although US yields are correcting and Washington continues to oppose Yen weakness, he argues that structural portfolio and FDI outflows are keeping the Japanese Yen under pressure. Halpenny points to NISA-led purchases of foreign equities and demographic factors driving FDI trends. Over time, policy and interest rate differentials could provide support for the Yen.

Yen Under Pressure From Outflows and Policy

"What we can see once again though is that the reprieve for the yen is marginal (today’s gain is USD-related) with the rates/FX link for the yen still relatively weak."

"Intervention in last July / early August has distorted the link with rates but what the movement of the yen does indicate is that there are still some structural flows that continue to weigh on yen performance and those flows could well be slow to change."

"This expanded NISA limit will likely mean this scale of outflow persists given the erosion of savings held in deposit savings due to higher inflation and given strong equity market returns, in particular in the US."

"The mid-term election results in the US is unlikely to impact the US-Japan relationship and the strong message emanating from Washington over its opposition to the continued weakness of the yen."

"We still suspect the yen is close to a turning point and market rates and/or policies by the government to encourage greater sums of capital to remain in Japan should have a positive impact on the yen."

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