USD/JPY Known Unknowns

The report analyzes the USD/JPY exchange rate, arguing it is currently at fair value and likely to trend higher toward 170.45 unless Japan addresses structural fiscal and monetary weaknesses. Further BoJ intervention is characterized as fighting market fundamentals.

Key Takeaways

• 1.USD/JPY is trading around short-term fair value, making further BoJ intervention against market fundamentals.
• 2.The median fair value estimate for USD/JPY in simulations is 170.45, indicating an upward trend unless structural JPY weaknesses are resolved.
• 3.Key drivers for USD/JPY include the US-Japan short-term rates spread, Japanese 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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