US, Japan both believe forex volatility is undesirable - Bessent
At a Glance
The desk interprets the recent commentary from Justin Low regarding US-Japan relations and forex volatility as a signal of potential stabilization in the USD/JPY pair. Per the full note source, both the US and Japan are expressing a shared concern over excessive currency fluctuations, which could lead to coordinated efforts to manage the yen's depreciation. This aligns with Japan's strong economic fundamentals, which are expected to support the yen in the medium term. However, the US's reluctance to engage in joint interventions complicates the outlook, especially as the dollar remains strong against the yen.
Full Analysis
What the desk is arguing
The desk frames this as a cautious yet optimistic view on USD/JPY, emphasizing that both nations recognize the detrimental effects of forex volatility. The commentary suggests that Japan's robust economic fundamentals will eventually be reflected in a stronger yen, although this may take time.
Supporting this view, the Bank of Japan (BOJ) under Governor Ueda is seen as capable of guiding monetary policy effectively, which could stabilize the yen. However, the lack of commitment from the US for joint intervention indicates that any corrective measures may be limited.
The alternative read would be that without US support for intervention, the yen could continue to face downward pressure, especially if global market conditions remain unfavorable.
Where it sits in our coverage
Our consensus target for USD/JPY is 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This view aligns with jpmorgan's target, which is at the upper end of the consensus range, suggesting a more bullish outlook on the yen compared to bofa's more pessimistic stance.
How other firms see it
Firms like citi and jpmorgan are aligned in their belief that the yen will strengthen as economic fundamentals improve, while bofa takes a contrary position, anticipating further weakness in the currency.
Watch USD/JPY closely for signs of intervention or shifts in monetary policy from the BOJ, as these will significantly impact the trajectory of the pair moving forward.
What the calendar says
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From the original
In very close contact with Japan's ministry of finance We both believe forex volatility is undesirable Japan economic fundamentals are very strong and resilient That will be reflected in the exchange rate Have great confidence in BOJ governor Ueda in guiding monetary policy Made
Related speeches
4 itemsUS, Japan maintains robust coordination in dealing with FX market volatility - Bessent
The desk interprets the recent commentary from Bessent regarding US-Japan coordination on FX volatility as a signal of ongoing diplomatic engagement without immediate intervention commitments. Per the full note [source], Bessent's remarks highlight the robust communication between the two nations, particularly in light of Japan's economic resilience and its recent currency interventions. This aligns with our view that while the US acknowledges Japan's challenges, it is cautious about deeper involvement that could label Japan as a 'currency manipulator'. With consensus targets for USD/JPY hovering around 1.075, market participants should remain vigilant for any shifts in sentiment or policy announcements from either government.