USD/JPY: LOCAL FACTORS SHOULD SUPPORT THE YEN LATER IN THE YEAR

The JPY is back as the “safe haven” of choice, as recent “risk off” periods have been associated with falling US yields. If banking-related anxiety does not intensify, this would point to a weaker JPY over the near term, but economists at HSBC believe local factors should provide support for the JPY later in the year.

Near-term sideways, but longer-term strength

“If banking-related anxiety does not intensify, this would point to a weaker JPY against ‘risk on’ currencies over the near term. However, it may be possible for local news to get some traction in the JPY. If the news flow on Japanese wages remains favourable, then this could counter some JPY downside. As such, we expect USD/JPY to move largely sideways in the weeks ahead.”

“Beyond the near-term movements, the rationale supporting the JPY’s appreciation later in the year remains intact. For example, compared to early January, more Japan economists now think that the Bank of Japan (BoJ) will modify its yield curve control (YCC) policy this year. Japan’s trade deficit widened to a record level in January 2023, but this was likely exacerbated by holiday-related distortions and a lagged pass-through of lower oil prices. Subsequent numbers should be better.”