What the desk is arguing
The desk interprets the latest Bank of Japan data on direct investment as a sign of increasing investor confidence in Japan's economic recovery. Per the full note , the revisions for 2023 and 2024 indicate a notable uptick in direct investment flows, particularly in the manufacturing sector, which could bolster the yen's strength against the dollar.
The data shows that direct investment income for 2023 was revised upwards, reflecting a more favorable outlook for Japanese companies abroad. This could lead to a stronger yen as foreign investments yield higher returns, influencing market sentiment positively.
Where it sits in our coverage
Our consensus target for USD/JPY is 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns closely with jpmorgan, which is positioned at the higher end of the spectrum, suggesting a bullish outlook on the yen, while bofa remains more conservative with a lower target.
How other firms see it
Firms like jpmorgan and citi are aligned in their bullish outlook on the yen, anticipating a strengthening based on the recent investment data. Conversely, bofa and goldman express caution, suggesting that external economic pressures could hinder the yen's appreciation.
Key indicators to watch include the GDP growth rate and balance of trade figures, as these will likely influence the USD/JPY trajectory in the near term.
What the calendar says
With the upcoming GDP growth rate and balance of trade figures set for May 19, traders should be alert to how these data points may impact the yen's performance against the dollar. A stronger-than-expected GDP report could reinforce the bullish sentiment surrounding the yen.