The JPY has stopped strengthening over the past few months. It paused in late July when the government was close to announcing what ultimately became the JPY 28tn fiscal package. More steepening of the curve, the current BoJ aim, as inflation picks up, will weaken the JPY in the coming months.
JPY – close to “fair value”; better chance of weakening ahead.
The JPY has been closely correlated with global rates lately. Looking at short-term models, the USD/JPY looks fair at current levels. Global long yields need to rise to push the JPY weaker. The bias for rates is clearly up in Q4 because of inflation. But timing is everything, and it is difficult to see a major push higher ahead of the November 8 US presidential elections. On the 3M horizon we see USD/JPY back at 104 and higher later on, which exceeds consensus expectations and is more than the forward market prices in.
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