USD/JPY Known Unknowns

USD/JPY is currently trading near fair value, making central bank intervention counter-productive. Our analysis suggests an upward trend toward a median fair value of 170.45 driven by structural macroeconomic and geopolitical factors.

Key Takeaways

• 1.USD/JPY is trading near fair value; further BoJ intervention is likely ineffective as it combats fundamental drivers.
• 2.Our model shows the median fair value of USD/JPY at 170.45, suggesting the path is higher unless structural JPY weaknesses are addressed.
• 3.Key drivers for the next 18 months include the US-Japan interest rate spread, Japan's fiscal sustainability concerns, and US-Iran geopolitical outcomes.

Table of Contents

• Intervention against the odds
• Known unknowns
• The Fed vs the BoJ
• The US-Japan box yield spread
• US-Iran peace negotiations
• Fighting an uphill battle?
• Conclusions: more intervention or something else?

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