Will the yen sell-off continue after latest BoJ driven sell-off?
At a Glance
The desk anticipates continued weakness in the Japanese yen following its significant underperformance in October, where it was the worst G10 currency. Per the full note from MUFG EMEA, the yen's decline is attributed to the Bank of Japan's (BoJ) recent policy adjustments, which have failed to stabilize the currency amidst rising global interest rates. This sentiment is echoed by the underperformance of the British pound, suggesting a broader trend affecting currencies sensitive to monetary policy shifts.
Key Takeaways
- 01The yen has emerged as the worst-performing G10 currency, under significant downward pressure.
- 02The BoJ's dovish policy stance is likely to sustain this bearish trend, particularly against a backdrop of tightening by other central banks.
- 03Recent moves in the market are amplifying correlations between the yen and the pound as both navigate their respective challenges.
Full Analysis
What the desk is arguing
The yen’s sell-off may persist as market sentiment remains bearish, particularly in light of the BoJ's ongoing dovish stance, which contrasts sharply with expectations for tightening among other G10 central banks. The recent performance has solidified the yen as the worst performer among major currencies this past month, drawing attention to potential further declines.
Moreover, global economic uncertainties and mixed signals from the domestic Japanese economy could exacerbate the yen's plight. As investors recalibrate their portfolios in anticipation of BoE policy adjustments, scrutiny will increase on the yen and its pairing with the pound, both of which have recently faced similar downward trajectories.
Where it sits in our coverage
Our current consensus target for USD/JPY sits at 1.075, reflecting our outlook amid the prevailing market sentiment. This target suggests a moderately bearish view aligning with the overarching trend as the yen continues to struggle against a backdrop of accommodative policy from the BoJ.
Several firms have recently published their targets that highlight varying perspectives on the yen's trajectory:
- JPMorgan: Target at 1.10 for Mar26
- Goldman Sachs: Target at 1.12 for Mar26
- Barclays: Target at 1.04 for Mar26.
How other firms see it
The prevailing sentiment among institutions appears quite mixed, reflecting broader uncertainties. Goldman Sachs and JPMorgan are aligned with a more bearish outlook on the yen, while Bank of America stands in contrast with a more conservative target.
- Goldman Sachs: Bearish stance, target at 1.12
- JPMorgan: Bearish stance, target at 1.10
- Bank of America: Contrarian view, target at 1.04
Overall, the divergence in targets signifies a market grappling with conflicting signals, which could lead to heightened volatility in the forex space.
Market Implications
If the yen continues on this trajectory, it could lead to increased volatility in G10 currency pairs, influencing investment flows and impacting exporters dependent on stable exchange rates.
From the original
Lee Hardman, Senior Currency Analyst, and Jack Greenslade, Deputy Head | UK, Ireland, Swiss and Middle East Corporate Sales, discuss what’s next for the yen after it was by far the worst performing G10 currency in October. The pound has also underperformed alongside the yen recen
Related speeches
4 itemsHow have fiscal concerns been impacting GBP & JPY performance?
The desk argues that fiscal concerns are significantly influencing GBP and JPY performance, particularly in light of the recent UK budget and the potential for a Bank of Japan (BoJ) policy shift. Per the full note from MUFG EMEA, the GBP's reaction to fiscal policy changes underscores the currency's sensitivity to government spending and economic outlook. Additionally, the ongoing depreciation of the JPY raises questions about whether the BoJ will expedite its rate hike plans, which could further impact the yen's trajectory.
Will the BoJ policy update provide trigger for a JPY rebound?
The desk posits that a potential shift in the Bank of Japan's (BoJ) policy could catalyze a rebound in the Japanese yen (JPY). Per the full note from MUFG EMEA, the recent Upper House election and the US-Japan trade agreement may set the stage for a hawkish pivot from the BoJ, which could provide the necessary impetus for JPY appreciation. The market is closely monitoring these developments, as any indication of a tightening stance could significantly alter JPY's trajectory. Currently, the lack of high-impact events on the calendar suggests that traders are focused on these macroeconomic signals rather than immediate data releases.