JPY: A New and Higher Range

HSBC has raised its USD-JPY forecasts, citing a structural shift into a higher range due to widening US-Japan rate differentials and persistent Japanese fiscal concerns. While intervention by the Ministry of Finance remains expected, analysts believe the threshold for such actions has increased.

Key Takeaways

• 1.USD-JPY has transitioned into a new, higher range driven by US-Japan rate differentials and domestic Japanese fiscal/capital flow factors.
• 2.The Ministry of Finance (MoF) is expected to intervene eventually, but the threshold for action has shifted higher due to a stronger USD and changing market correlations.

Table of Contents

• US-Japan rate differentials are stabilising at still-unfavourable levels for the JPY
• USD-JPY became negatively correlated with the 30-year yield differential again
• Fiscal concerns are coming to the fore again as the government considers various new expenditures and investments
• Retail investors are still investing in foreign equities
• Triple falls in Japanese assets have become more common
• The JPY has depreciated in all major risk-off episodes year-to-date
• We still expect MoF intervention
• The threshold may be slightly higher given the USD's shift post-FOMC
• Gross short JPY positioning has reached an all-time high
• Net short JPY positioning has not reached an all-time high

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