Historical Highs For Japanese Equities And Ongoing JPY Weakness

The record-high performance of Japanese equities is triggering significant JPY-sale hedging, creating persistent downward pressure on the currency. Citi maintains that unless the pace of equity gains slows or monetary policy is normalized, the JPY is likely to remain weak.

Key Takeaways

• 1.Historically high levels of Japanese equities are driving JPY selling through hedging and rebalancing activities.
• 2.The causal impact of Japanese equities on the JPY is significant; JPY weakness is a byproduct of investor hedging against equity volatility.
• 3.Controlling JPY weakness may require BoJ monetary policy normalization or MoF intervention, particularly if equity gains continue.

Table of Contents

• Citi's Take
• Mystery of equity strength coupled with JPY weakness
• More complex modelling
• Investment in Japanese equities by foreign investors and buying of JPY
• JPY-sale hedging resulting from strength of Japanese equities
• Impact of rebalancing
• True nature of JPY weakness
• Strength of equities versus interest rate spread
• JPY weakening pressure from higher stocks

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