Japanese Yen turns with policy backing – Rabobank

An assessment by Rabobank's RaboResearch Global Economics & Markets’ FX Strategy team examines the Japanese Yen’s (JPY) recent outperformance and prospects for further improvement over the medium term. Alongside official FX intervention and resistance near USD/JPY 158.70, the report points to stronger wages, possible BoJ tightening and shifts in JGB demand as potential sources of support for the JPY. In the authors’ view, USD/JPY has room to ease over the coming months.

BoJ and JGBs Shape the Yen Outlook

"The JPY is the second best performing G10 currency in the half year to date. Admittedly, this strong ranking has been obtained with the support of sizeable FX intervention over 3 days during the summer, which included joint support with the US Treasury. That said, the JPY has managed to outperform the USD on a 1-month view with the market displaying a clear reluctance to push USD/JPY above the 158.70 area which coincides with the 200-day sma."

"While the sell-off in the Nikkei 225 at the end of last week depressed market expectations regarding the chances of a December BoJ rate hike, the strength of September wage data supports the potential for further policy tightening both next month and into next year."

"In our view, this suggests USD/JPY can edge lower to the 155.00 area on a 3-month view. Another component of any JPY turnaround would likely be a more robust tone in the JGB market."

"This could contribute to a more supportive backdrop for the JPY in the months ahead."

"Q3 GDP data and October national CPI inflation, both due next week, will be of interest to BoJ watchers. We remain cautiously optimistic on the medium-term outlook for the JPY."

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