Global FX and Commodities: The bullish case for gold, the bearish case for USD ex-yen and the shutdown showdown
The desk posits a bullish outlook for gold while adopting a bearish stance on the USD, excluding the yen, amid ongoing political uncertainties in the U.S. and Japan. Per the full note source, the commentary highlights the cyclical nature of FX markets and the implications of potential government shutdowns on currency valuations. With gold's appeal likely to strengthen as a safe haven, the desk anticipates a shift in positioning that could favor non-USD currencies. The commentary also revisits the yen's prospects in light of recent political developments, suggesting a nuanced approach to Japanese monetary policy.
What the desk is arguing
J.P. Morgan analysts argue that gold is well-supported amid ongoing geopolitical and fiscal uncertainties, while the US dollar is expected to weaken against most currencies except the yen. They advocate for cyclical FX exposure, favoring currencies tied to global growth, and reassess the yen's outlook following recent political changes in Japan. The US government shutdown is noted as a key near-term risk.
Where it sits in our coverage
We do not have internal coverage data on the relevant currencies/gold, so we cannot cite firm consensus or spread. The desk's views align with a broader market tilt toward bearish USD and bullish gold, but no specific targets are provided.
How other firms see it
No other firms are cited in the source commentary. The analysis is entirely J.P. Morgan's own, with no cross-references to competing views.
Key takeaways
01J.P. Morgan is bullish on gold and bearish on the USD ex-yen.
02Cyclical FX is favored as global growth dynamics improve.
03Yen outlook is being reassessed after Japan's political developments; US government shutdown is a key risk.
Market implications
If J.P. Morgan's view materializes, gold prices could rise further, while the USD may weaken broadly. Cyclical currencies such as AUD, NZD, and CAD could outperform. The yen's trajectory will depend on the outcome of Japan's political situation and global risk appetite. The US shutdown risk adds near-term uncertainty, potentially boosting safe-haven assets like gold and the yen.
Risks to this view
Key risks include a prolonged US government shutdown, unexpected shifts in Japan's political landscape, a resurgence of USD strength due to geopolitical shocks, and changes in central bank policies (Fed, BOJ) that could alter rate expectations.
Hello and welcome to J.P. Morgan's At Any Rate podcast. I'm Meera Chand and co-head of FX Strategy at J.P.
Morgan. Joined today by a full suite of strategists from J.P. Morgan, Natasha Koneva, who is head of Commodities Research, Aneshka Kristavova, covering and head of LATAM and EMEA EM local market strategy.
We've got senior FX strategist Junya Tenase and Patrick Locke joining from Tokyo and New York respectively. So, you know, basic frustration as like all other weeks for FX, a lot to talk about, but rangy price action, at least on the DM side, particularly EURUSD. So it's been it's been painful for dollar bears like ourselves.
You know, maybe we should be sort of switching gears and talking about Taylor Swift's new album instead. But let's just stick to our range of topics here. To set the stage, the week has been about the news, mostly outside of the U.S., particularly on the DM side.
We've had a series of either fiscal or political sort of headlines that are showing that the dysfunction is not specific to the U.S. We've got obviously the big news this week, Japan's outcome on LDP leadership, which we talked to Junya about that has implications for yen. We've had the French political developments as well.
The U.S. shutdown is ongoing. Obviously, UK continues to grapple with the fiscal story. So the sense has been, at least on the DM side, is is dollar bearish viewed necessarily the best way to position or to think, you know, to express this broad fiscal and political concerns.
So hence, we've seen, you know, strengthening in the dollar. And obviously, the big, you know, sort of star of the week has been gold, which has pierced through 4000. And hence, we have Natasha on for that.
So, Natasha, I think it really helpful for the readers. You know, you obviously had a great call on gold. You've been all over the fiat currency, the basement trade with regards to gold.
You know, we've kind of had that theme across markets. We've been bearish. The dollar focusing on fiscal differentiation.
The rates team has been recommending, you know, steepness. But what is really driving the latest increase in gold? It's not really, you know, what's interesting to me is that the latest move has come without any dollar weakening.
It's come without the yield curve steepening in DMs and without a similar sort of increase in Bitcoin prices as well. So what's what's actually going on here and what's the outlook going forward? Yes.
Thank you very much for having me. And first of all, I just want you to put in people's mind. Yes.
Like first of all, as you absolutely correctly pointed out, we issued a bullish call on gold in November of 2022. We made this so structurally bullish call within the commodity sector heading into this year. Gold remained our top bullish pick for a short consecutive year.
But as you pointed out, you know, like just look at how fast this rally was happening and just some numbers there. So the U.S. abandons the gold standard in 1971, and then it takes about 38 years for gold to surpass the thousand dollar mark in March 2008 during the global financial crisis. So then the two thousand dollar milestone was reached in August 2020, you know, clearly the economic uncertainty around the COVID pandemic.
But it was a 12 year journey just to double from the value of thousand. So the timeline then has accelerated with less than five years needed to reach the third milestone. That was March this year.
Yes. Two thousand twenty five gold prices broke through the three thousand dollar barrier. And in one was the world diminishing return.
Of course, as you just pointed out, the swift action from three thousand to four thousand this week occurred in just two hundred and seven days. So it's, you know, clearly the wine is, you know, the timeline is accelerating very fast. So our goal or our target, the next target is the six thousand target case for for late 2008.
So what is behind? So you're absolutely correct. The original call that we made was the debasement trade, because if you take a look, you know, over the two decades leading up to 2022, gold valuation was closely linked to the U.S. real yield, as you absolutely correctly pointed out, and was institutional and retail investor investment flow serving as the primary driver of the price movement.
So the relationship between the U.S. real yields and gold accounted for nearly 90 percent of the variation and the gold prices. Yes. And we we have been talking about that for many years already.
Twenty five basis points move in the U.S. real yield resulted in the 80 dollar move in the gold price in the opposite direction. However, this relationship completely broke down in the first quarter of 2022. In our view, that was the decision by the U.S.
Treasury to freeze 300 billion dollars of sovereign Russian foreign reserves in early 2022, right after the Russian invades Ukraine. This was a very successful move, despite that only five billion of this 300 billion were located in the United States. It upended the global financial order that had prevailed over the past 50 years.
And it's structurally changed the demand for gold. So what happened at that time is that the second buyer of gold occurred. The global central banks, which historically provided the floor to the gold price because they were buying low, they were selling high, they rarely propelled prices upwards, but they suddenly emerged as a powerful price and elastic second source of demand.
And as you pointed out, that's the relationship between the real yield and gold completely broke down at that time. Similarly to what we're having right now, we have the U.S. Real Year Treasury moving up, you know, in that period, 2022, early 2023.
But at the same time, we had a very strong move in the gold price as well. Right now, for 2025, what we believe is that a third buyer is emerging. And so what we believe is that the foreign sovereign wealth funds and reserve managers or the foreign holders of the U.S. assets appear to be reassessing the risk reward profile of holding U.S. assets.
And what we calculated is that even a modest reallocation, just 0.5 percent, yes, 50 basis points of the $60 trillion in U.S. assets held by foreign investors, if that moves into gold, that would be enough to move the gold price from the current levels to about $6,000 by early, late 2028 or early 2029. And finally, what is the primary reason for that is the fact that gold supply has proven to be price and elastic. So very, very strange for commodities markets, commodities markets, if the price is there, supply is there.
But what we're observing right now is that we have three major buyers of gold, yes, three major sources of demand, but there are effectively no significant sellers left. And so the main reason for that is gold market is very small. Yes, we're not FX, we're not the treasuries market.
And so what I would like to leave our listeners with, this is a mental picture mirror, is that through the history of humankind, 6,000 years ago, we have evidence that people were already mining for gold in Egypt, Mesopotamia, all the gold ever mined in the history of humankind can fit on one soccer field to the depths of just one meter. That's it. So we have a lot of buyers.
We have no sellers and we have a price and elastic supply. That's what moves the gold price. That's a that's a pretty bullish story here.
And, you know, I'm just I'm just wondering how long the dollar can stay decoupled from gold. So certainly something that we're going to be tracking pretty closely. These correlations are shifting in a way that we hadn't quite anticipated.
But thanks for your comments on that, Natasha. So let's just let's just shift our focus now to the FX side of the equation. And, you know, I just want to make a quick comment on Yaro and also on DiEM as a whole.
I mean, we've had a lot of political developments this week, as I mentioned, when we started this podcast. And I think, you know, the takeaway for us is in Japan, you know, this could be characterized as a potential regime shift for the yen. And we'll talk about that with Junya in a bit.
But for the euro, I'm really struggling despite the price action is really struggling to see how the story has changed that that warrants any kind of rethink of of the bullish narrative we've had on the currency. I mean, the French story is obviously not great for confidence, but it's going to be contained. It's not a great outcome, but it's not going to detail this fiscal consolidation story.
I mean, the political sort of rigmarole might might be lasting for a few more weeks, but we'll have to see. But it's not really changing the bottom line here. The underlying sort of fiscal commitments are still there from the region.
The asymmetric Fed reaction function is still there. Problem is, it's hard to have a lot of confidence in that when we're flying blind on the data given the shutdown. And I think where we, you know, we had noted, you know, around around the Fed and in the aftermath of it, that at those high levels of 119, it did look like post Fed that the risk reward wouldn't be necessarily that great.
Our near term conviction level was pretty low. But, you know, now we start getting to the levels on euro dollar once again with the risk reward is starting to get interesting again. I think a couple of observations from me on that is just that 117 is where I would put the fair value for euro dollar based on real yield differentials.
That's the first time I would say post liberation day that you're actually seeing spot in euro dollar trade below the fair value. You know, if I do some sort of shock analysis and what an entire unwinding the net euro longs would do, that would be worth about 3 percent or so from the peak of which we've had a couple of percent already. So, yeah, I mean, you know, we could get larger moves.
Don't get me wrong. I mean, this is obviously a positioning driven market in the absence of data. But but, you know, I'm sort of thinking that the risk reward here is starting to now become interesting again for for euro bulls.
So still a medium term bias here. A view here is still, you know, fairly constructive in euro dollar teams. We like aside from the dollar thing is like, you know, some high beta currencies within D.M. look quite, quite attractive.
Still Aussie, Scandis, our favorite picks is as, you know, as clients will know. And then the other thing is the fiscal differentiation among D.M.'s is going to still be a theme. And and so the currencies we've been flagging on that is really being more downbeat on the currencies that are highly indebted, you know, like sterling, yen and the dollar and being more constructive on the ones that are less indebted, like Scandis and the Swiss franc and Aussie sort of fits into that bucket as well.
But, you know, the other thing that is emerging and, you know, that's why I wanted to ask Aneshka to be on as well, is that we are starting to see a lot more interest in sort of the price action is showing that people are looking for carry. And, you know, till about a month ago, what we were seeing is that the D.M. high beta currencies were keeping up pretty well with him. E.M. high yielders.
And now that decoupling is starting to unfold where the E.M. high yielders are actually feeling much better. And, you know, this theme of funding, you know, using the D.M.'s as funders in a more cat, you know, to earn some carry versus E.M. I think is something that's certainly getting more airtime.
So Aneshka, what's your take on E.M.? What are the best bottom up stories in E.M. that you would be constructive on? So I would certainly agree with your observation that it's the more high yielding space in E.M. that has recently felt better.
In fact, when we go through the bottom up stories, that's also lines up because recently we found a lot of the bottom up stories and all the others kind of felt exhausted. And we've taken a step back from those. Whereas in the bit more high yielding, mid yielding space, that's where the stories appear a bit more exciting.
Let me highlight a few of those. It's not an exhaustive list by any means, but just the most interesting ones. I think South Africa here is a stand out, especially after what we heard from Natasha on gold, on precious metals.
This is our liquid E.M. market where you are probably getting the most exposure to the precious metals theme. It's a precious metals exporter, energy importer. Terms of trade have been rising very, very sharply.
Within the liquid E.M. space, this is probably your only option. We have precious metals exposure in frontiers. Some countries that are exporters are, for instance, Uzbekistan, Ghana.
But South Africa is kind of the more liquid alternative. What is interesting about South Africa, though, which often is not mentioned as frequently, is that the country has actually embarked on a structural reform over the past few years. In several aspects, it's paying off.
That's energy, transportation, and the inflation target change is the latest one. That is kind of making it interesting from another aspect as well. Other stories I would highlight, Hungary is an interesting one in this region where we have a very important election risk in 2026.
But on top of that, we have recently seen the fundamentals improve and the macroeconomic policymaking shift a bit more orthodox than, let's say, some of the historical periods which have worried investors. We saw some volatility on that theme, but broadly speaking, we still think it's in place and that's something to watch. In Lausanne, within the high-yielding space, Mexico stands out to us because when we look for carry, it is often in the context of several risks, fiscal risks, election risks.
I think Mexico is one where you tick the boxes a bit better for a stable carry without any obvious concerns in terms of unpredictable political risks. Obviously, we have the US-MCA negotiation coming, but we are optimistic that that could be actually concluded in a constructive way. The final one I would mention is Chile.
It's again in the commodity space, not precious metals, but certainly other commodities have also seen some upside potential. Our commodity team has turned also bullish on copper, so that impacts Chile more directly. It is more in the low-yielding space, but one that has lagged on other low-yielders, and it looks to us that it has some risk premia in it.
So, that's another interesting story there. Yes, thanks, Aneska. The contrast that the North America team has been making between CAD and Mexico is also quite an interesting one in that vein.
And then the pairing of euros are as well, as you mentioned before. So, let's just move to DiEM, just to wrap up the discussion. Junya, Japan's front and centre, we've had a pretty surprise outcome there.
What's the latest on politics? How are we thinking about the implications for fiscal and monetary policy here? Thank you for the question, Tanada Mira.
So, yes, Sanae Takaichi has won the LDP leadership election held on October 4th, the last weekend. As it's seen as a surprise, we have seen a sharp decline in the Japanese yen and a sharp rally in Japan's stocks this week. Takaichi has become the first female president of the LDP, but she has not yet become Japan's first female prime minister.
To achieve this, she must secure a majority vote in the lower house, and a prime ministerial selection vote as scheduled for October 15th. Since the LDP does not hold a majority in the lower house, it needs to obtain an additional 37 votes from other parties to reach a majority. In this context, there are the media reports today that Komeito, a longstanding coalition partner of the LDP, intends to dissolve its coalition with the LDP.
Indeed, this is not a complete surprise as Komeito had previously indicated that it would leave the coalition if Takaichi was elected as president. But this development means that Takaichi now needs even more votes to become prime minister. Various negotiations with various parties are expected to take place regarding this, but outlook remains extremely uncertain.
Regarding its implication on fiscal and monetary policy, as a baseline, we maintain our view that Takaichi's dabbish stance on fiscal and monetary policy is weaker than before. She had clearly stated that her top priority in economic policy is addressing rising prices, domestic prices. And we believe that she does not wish to see a situation where dabbish BOJ policy accelerates at the yen depreciation.
On monetary policy, although our Japan economists remain unchanged for their view of October hike, ongoing political instability has made the outlook for BOJ rate hike in this month very uncertain. However, even if BOJ will not be able to deliver a rate hike in this month, partly due to some political scheduling or something like that, given the strong domestic inflationary pressure, it is unlikely that the rate hike will be postponed indefinitely. Therefore, the current situation where the probability of rate hike this year have dropped below 15% is likely an overreaction.
We believe that if BOJ skips October, December hike will become the most likely scenario. Regarding fiscal policy, while the BOJ is guaranteed a certain degree of independency, fiscal policy is determined by politicians. So current political uncertainty makes the outlook for the fiscal policy extremely unclear.
Takahashi's baseline stance on the fiscal policy is to correct the disparities. And it can be said that she does not favor broad-based handout policies. In my understanding, what investors are most concerned about fiscal policy is the scenario in which a consumption tax cut is implemented.
Significantly increasing concern about fiscal sustainability. However, regardless of the various political scenario from here, the possibility of consumption tax cut being realized is extremely low, at least in the near term. This is because the framework for next year's general budget needed to be decided by end of this year.
And given the current quite fragmented political situation, it is almost impossible to put together a large-scale package within this time frame. However, physically, I can say the heightening political uncertainty at present might be temporarily reducing fiscal risks. That's from me about other monetary policy and fiscal policy.
Thanks, Sunia. So it looks like a lot of uncertainty here, even though the eventual move is going to be constrained. But what are the implications for yen here?
What is, you know, our approach to the dollar has been that the combination of monetary policy easing and fiscal easing would be currency negative. So that applies presumably to the yen as well. And then, of course, the important question in people's mind is what is the intervention threshold we should be watching if dollar yen continues to head higher?
Yeah, thanks for the question. As I said, as we maintain our view that Takaichi's dubious stance on fiscal and monetary policy is weaker than before, the current decline in the market pricing of BOJ hype is overdone. And at some point in the future, in the near future, rate hike expectations should rise again, increasing downward pressure on the yen.
However, I can say that the risk to yen downside to our current view has heightened due to the recent political uncertainty. Our year-end direct target is now 142, but it is based on the assumption of a BOJ hike in October and a shift in BOJ's communication regarding the terminal rate, as well as possible repricing by the market participant about their expectation for terminal rate. However, with the recent increase in the political uncertainty, the timing of this development to materialize is likely to be postponed.
In addition, the starting point for our outlook has been significantly raised due to other position adjustment ignited by Takaichi's victory at the election. Our view remains that the yen will be at the range bound as upside risks will be limited by some policy action, including the hawkish BOJ, MOF intervention, and the U.S. warnings. Meanwhile, downside risk as well would be limited due to significantly negative yearly interest rate in Japan.
However, I think the possibility that trading range will shift higher from our current baseline at 142 to 150 is rising. About the intervention, in the baseline, any decisions on the intervention are fundamentally based on the G7 FX commitment, which has been reaffirmed at the U.S.-Japan financial ministers' meeting in this April and stated in the joint U.S.-Japan statement issued in September. Therefore, there is no preset line in the fund level for the intervention, and the intervention is considered an exceptional measure taken only in response to excessive volatility and disorderly movement in exchange rates.
This is G7 baseline. And of course, needless to say, Japan and the U.S. and both countries are the members of G7. As a reference point, last year, the MOF intervened to buy yen and sell U.S. dollar at a level between $1.57 and $1.62.
Compared to last year, as the Trump administration does not want to see higher yen, and the Japanese public dissatisfaction with inflation appear to have increased further, tolerance level for yen depreciation might be even lower now than that of last year's case. Although there is no line in the fund level for the intervention, considering last year's development and the current macro market and the political environment, it might be reasonable to regard level above $1.55 as a soft threshold for intervention. However, again, finally, I would like to insist, intervention is highly conditional in Japan's case, and there is no line in the fund level.
For example, if the yen rises by 5 yen at around $1.58 each within today, the probability of intervention would be reasonably high. But if the yen gradually rises in the coming months and eventually reaches $1.58 level, the possibility of intervention will be still debatable. So that's from me.
Thank you. Okay. Thanks a lot, Junya.
So it sounds like the speed with which we approach $1.55 is key here, but that's kind of the level we're watching. And it does seem like we're looking for a choppy range, but at a higher level here, because I do personally think that any kind of reaction to any comments that Takaichi makes on the combination of fiscal and monetary easing is going to be viewed as quite currency negative and the market will react more quickly. But probably a more pragmatic approach will require proof and policy action and will take longer to unfold in how the market reacts.
So that's going to make things quite hard on dollar-yen here. And of course, it doesn't help that the U.S. data is missing as well. But last question, last but not least, Patrick, let's move on to the U.S.
If we could get a quick hit update on what the status of the government shutdown is and what we can expect on data releases going forward, that would be great. Yeah, sure, Meera. Look, so there was little progress this week.
I mean, no real obvious shifts in kind of the baseline positions or the main sticking points. The Senate has every day kind of like voted on the existing House-passed CR and it's failed every time. And meanwhile, the House of Representatives isn't even in D.C.
So really not much movement anywhere on this kind of stuff this week. That being said, I think we're hitting some more kind of like important pressure points or kind of like checkpoints coming up. Today is the first day where federal workers will miss their first paycheck.
And an important kind of like political sticking point, the military will miss its first pay date next Wednesday, the 15th. There's a lot of sensitivity around that. There's also been bills floated this week, potentially trying to pay the military.
So you can see that like there is kind of a potential threshold or a checkpoint at which maybe legislators will be forced to act. We might get more color around that this weekend. But if it's not done ahead of that date, then this thing could still drag on.
And basically, if you look at betting markets right now, the kind of the base case has risen to about 25 days in total length. So taking you to that kind of like August or October 25th or 26th kind of date. Interestingly, the dollar has withstood the shutdown drag so far.
It's net higher, which is kind of a historical anomaly. But as we argued originally, it's not necessarily inconsistent with macro backdrops that can and often overwhelm any kind of real drag on the dollar here. We still think there's a couple downside risks.
President Trump has repeated the risk of permanent layoffs, even though I think it's a good thing that they haven't happened yet. There's also been this risk floated of not back paying furloughed workers. I think that would be negative from kind of a sentiment and a consumption kind of perspective.
And then again, the longer this goes on, there's kind of the more of the building GDP drag. So none of that is particularly good for the dollar, or certainly it's not. Yeah, there's nothing good there.
It seems kind of skewed to the downside. But as you say, I'd say the one kind of like, you know, ray of hope that came out of this week was that the media reports that the BLS is considering recalling staff to help get the CPI data collected and disseminated by the end of the month. Part of that is released to the cost of living adjustment that takes place at the end of the, you know, basically around the end of the third quarter.
That's important for things like social security. But basically that means we're not gonna be totally in the dark on federal data like we had been fearing that we might be. It's not clear to me that we'll get payrolls data necessarily, but, you know, we'll certainly take CPI, you know, volatility then around the data release.
It should start to take up a little bit, get a little bit more visibility and transparency for the macro landscape for the FX and for the dollar, which I think will be useful. So that I guess is probably the most important kind of like macro FX relevant development this week. Yes, thanks, Patrick.
And the interesting thing this week was, of course, the shutdown and all the risks associated with it was well known coming into this week. What was unknown is that, you know, all this stuff that'll happen in Japan and in France at the same time. So that's, I think, really what's caused the dollar, you know, move this week.
But let's wrap that up. It's been a long one already, but please take a look at our research reports on the website. If you have any follow-ups, this communication is provided for information purposes only.
Please refer to JPMorgan Research Reports related to its content for more information, including important disclosures. 2025 JPMorgan Chase & Company, all rights reserved. This episode was recorded on October 10, 2025.