Global FX: Dollar Debate Corner (again), Yen, RBNZ/RBA
Per the full note , J.P. Morgan's FX podcast returned to its 'Dollar Debate Corner' after a strong U.S. employment report, with Meera Chandan and Arindam Sandilya sparring over the greenback's trajectory. The yen takes center stage, driven by fresh GPIF developments and aggressive BOJ rate-hike chatter, while the Antipodeans (AUD, NZD) are analyzed by Ben Jarman. The desk remains tactically constructive on the yen for a narrow window, following Treasury Secretary Bessent's comments on FX intervention, but the broader dollar view is contested. With no high-impact calendar events in the next 30 days, positioning and central-bank headlines will drive near-term FX moves.
What the desk is arguing
The J.P. Morgan FX team frames the dollar debate as unresolved post-payrolls, with Chandan and Sandilya presenting contrasting views on sustainability of USD strength. The source highlights a 'debate corner' format, suggesting the firm is genuinely split rather than offering a single house view, as they weigh the robustness of the U.S. labor market against global disinflation and central-bank divergence.
Supporting evidence includes the strong employment report, which bolsters the case for higher-for-longer Fed rates, but the desk flags that the dollar's upside may be limited by stretched positioning and the risk of U.S. FX intervention, especially against the yen. The source cites Treasury Secretary Bessent's comments, which the desk interprets as a signal that Japanese authorities could act, prompting a 'tactically constructive' yen view for a narrow window.
The alternative read—that the dollar rally has further room to run if U.S. exceptionalism persists and the Fed stays on hold—is implicitly rejected for now, as the desk sees the risk-reward as skewed toward yen strength and Antipodean resilience.
Key takeaways
- 01J.P. Morgan's FX team is engaged in a formal 'debate corner' on the dollar outlook, following a strong U.S. payrolls report, with no clear consensus.
- 02The desk has turned tactically constructive on the yen for a narrow window, citing Treasury Secretary Bessent's comments and fresh GPIF/BoJ developments.
- 03GPIF news and BoJ rate-hike chatter are key inputs for the yen view, suggesting a possible shift in Japanese asset allocation.
- 04AUD and NZD are under review, with the RBNZ and RBA decisions likely to influence their trajectories.
Market implications
Watch USD/JPY for a potential tactical decline if Japanese authorities intervene or the BoJ hints at faster normalization; a break below recent lows would signal conviction. For AUD/USD and NZD/USD, positioning ahead of central bank meetings will dictate near-term direction, with the RBA's stance crucial for the Aussie.
Risks to this view
A stronger-than-expected U.S. inflation print could rekindle dollar strength, invalidating the yen's tactical rally. Conversely, a dovish surprise from the BoJ or GPIF's decision to increase overseas investments would undermine the yen's gains. For the Antipodeans, a hawkish RBA might be already priced, leaving AUD vulnerable to disappointment.
Hello and welcome to J.P. Morgan's At Any Rate podcast. I'm Meera Chandan, co-head of FX Strategy at J.P.
Morgan, and today we actually have a pretty full roster of strategists joining all the way from Tokyo, Sydney, Singapore, London, of course, and New York. So we have a few things to talk about, and I think we'll do this in two parts. The first, we'll talk about a couple of bottom-up stories.
We can't have an FX podcast this week without a discussion on Yen. So we have Junior Tenasin Ikoi Saito joining for that. We'll then go on to Ben Jarman and talk about Aussie and Kiwi.
And then finally get to the main event this week, which is U.S. payrolls, and that's where we'll feature our debate corner. You know, after we did a couple of debate corners in the last two or three weeks, we had some pretty good feedback, and we got a special request once again this week to do yet another one post-payroll. So here's that debate corner for you as well.
But let's just get started with Japan first and foremost. And I guess for market participants, really a couple of weeks ago at least what piqued my interest was that Treasury Secretary Besant said that, you know, markets should be questioning themselves on why the U.S. Treasury would intervene in FX and Yen if they didn't have and what kind of asymmetric information does he have on this.
It kind of alerted us to maybe there was something in the pipeline where he did mention he's passing the baton on to Japanese authorities and sort of prompted us, I think encouraged us, even though we've had a fairly downbeat, bearish view on Yen, it encouraged us to tactically sort of engage in a more constructive view for Yen for a very narrow window. So that's one thing that we liked. And actually this week was interesting because we got some new information on two fronts.
We got it on GPIF and then also there was some BOJ more aggressive rate hike chatter. So let's break that down equally. What have we learned around GPIF this week and what does it really mean?
I mean, what are the next steps here and what do we know for sure, what do we not know for sure? Thanks, Meera. So this week, one of the most interesting Japan flow stories is coming from GPIF and specifically early signs that the basic portfolio conversation may be back on the table after a few months.
So normally GPIF doesn't really hold the management committee meeting in August, but the agenda published on August 31st shows that the management committee actually met on August 21st, the first August meeting in seven years since 2019 basic portfolio review. And notably, the agenda included an update from the basic portfolio verification project team, even though that team concluded back in March 2026 that the review wasn't necessary. So seeing that the GPIF revisited just five months after the March decision is pretty unusual and it raises the possibility that GPIF is reconsidering its earlier stance.
So as a reminder for the number in terms of FX relevance, even without any formal basic portfolio change, there's still a potentially large near-term flow channel, simply moving allocations up to the top end of existing ranges. Roughly speaking, taking domestic bonds up to the upper bound would simply would imply about 12.3 trillion of yen buying and lifting Japanese equities to the upper bound would imply another 21.6 trillion yen of flow. So in total, about 33.8 trillion yen, which is $217 billion yen buying foreign currency selling can be implied from the GPIF portfolio shift allocation within the current band.
And to put that in the context versus the official action this year, MOF FXC intervention this year, year to date, is about $27.2 trillion, which is $174 billion US dollar. So the GPIF upper bound flow potential is actually larger by roughly about a quarter bigger than the year to date MOF official intervention. So how do we actually see the data flow that whether GPIF actually did the allocation shift or not is that the upcoming data point would be next week, which is the monthly flow released by the MOF on September 8th.
So we have some estimate number on the rebalancing flow. So we will check the actual number to see if there's any meaningful deviation from the current estimate. And if there is a meaningful deviation, it could suggest that we can see it as a first sign of portfolio behavior shifting.
OK. Thanks a lot, Igue. That was a great, great roundup on at least one of the prongs of strategy that could be undertaken to contain yen weakness.
Junya, let's move to you. There was some chatter about BOJ potentially hiking by 50. What are the odds of that?
And then also, what do you make of yen going forward? What sort of policy response do you need to see to get yen to stabilize here? OK.
Thanks for the question, Mila. So legally, the BOJ, since that coordinated intervention in late July, the BOJ rate hike expectation has risen sharply. That has been driven by speculation that the U.S. authority in exchange for cooperating with the intervention has forced the BOJ to accelerate monetary policy normalization alongside a series of remarks from Treasury Secretary President.
Markets have now fully priced in the September hike, and yen's one-year swap rate has risen to around 2.12%. This implies a faster tightening pass than our economists forecast, up to 2% by mid-next year and 2.25% by end of next year. In addition, as I mentioned, after board member Takada did not rule out the possibility of a 50-basis point hike or consecutive rate hikes in his speech on September 2nd, some market participants have started to discuss this scenario more actively.
When comparing a 50-basis point rate hike with consecutive rate hikes, consecutive rate hikes are more likely scenario in our view. The BOJ generally does not want to surprise the market in any sense, but a 50-basis point hike in September meeting would be a true surprise and would be highly likely to increase market volatility. Given that the BOJ is cautious about triggering a repeat of what happened after the surprise hike in July 2024 when the Nikkei planned it, no, I think a 50-basis point hike is unlikely to be a realistic option.
Fundamentally, the recent important development is that BOJ rate hike expectation has heightened. The earlier behind-the-curve concern has faded. And as a result, the relationship between BOJ rate hike expectation and the yen has effectively normalized, meaning that rising rate hike expectations are now more likely to translate into yen appreciation directly.
But the positive correlation between rate hike expectation and yen suggests if hike expectation retreats, the yen would depreciate. Given how heated the recent re-pricing looks, near-term risk may be tilted toward yen weakness when rate hike expectation is fading to some extent. In our best case, the yen should settle into 155 to 165 ranges at the moment even if the sharp decline in the yen and broad yen appreciation we have seen in recent days, this view is not changing.
And we assume for materializing this base line scenario that the BOJ continues hiking at roughly 1.25% pace for the time being and the Fed outlook does not shift materially from the current market pricing. Meanwhile, other catalysts for downside range break for the yen, say, yen appreciation scenario, would include increased Fed cut expectations amid the deterioration in U.S. economy, sharp correction in Japan's equities triggered by an acceleration in BOJ rate hike, and GPIF-based portfolio change, and data-saving intervention, and or an expansion of FEMA repo facility. With a relatively large yen short position potentially still in place, any of these catalysts could trigger significant short covering and amplified magnitude of yen appreciation.
So this is a risk. On the flip side, catalysts for renewed yen depreciation would include the less-than-expected BOJ hikes, which would revive behind-the-curb concern, more-than-expected Fed hike, and finally, the rising concern for Japan's fiscal risks. That's from me.
Thank you. Thanks a lot, Junya. So I guess we have to stay on watch for both GPIF and what the BOJ policy response will be in the next few days.
And I think even though, given the U.S. resilience medium-term, you know, we think that yen – pressure on yen on the weakening side remains. In the near-term, it certainly feels like some sort of policy shift is in place. So our preference here on the strategy side very tactically is that if, you know, to have some constructive sort of yen view, but do it versus other low-yielders like either stocky or Swiss, where the domestic policy is not as much in place.
Obviously, with dollar-yen, the domestic Fed policy is in play as well on the dollar side of the equation. So it's best to keep the dollar out of the equation again and just focus on things like stocky yen or Swiss yen. Okay.
Let's move on to Ben with the Antipodeans. We've had the Reserve Bank of New Zealand this week. RBI is actually repriced pretty aggressively as well.
What do you make of these developments, and what's the view going forward? Thanks, Meera. Thanks, Meera.
So the RBNZ message was steady as she goes. Second consecutive hike. They kept their OCR forecasts for further tightening back toward neutral, essentially unchanged.
They have moved a bit ahead of the projections so far, so they think they've won a bit of discretion on the timing of the next move with 50 basis points under the belt. So they did seem to set up for a pause next meeting. That's in line with our call, that they'd hike 50 basis points, pause for one meeting and then do another 50.
Kiwi rates didn't do a huge amount on the announcement. Two-year swap has ended up about three or four basis points below where we entered, but we saw definitely a greater initial weakness in Kiwi on the crosses as well, which I think does draw out one of these important things for Kiwi this year, which is that while a lot of the scepticism has been with the recovery and the Kiwi hiking cycle, those have actually delivered. It's really been the windows of global rate repricing, which have been the real challenge for Kiwi.
So the drawdowns that we've seen from the high 50s, low 60s level on the Kiwi dollar this year have generally been windows where we've had global rates repricing. So Kiwi's main challenge, whether it was in June or in late August or early September, has been that when you're already expecting a pretty steep hiking cycle, that you don't really have anywhere to go when the world goes through these hawkish bouts, even if it is synchronised and you have these solid global cyclicals underneath. That's been particularly true for Aussie Kiwi, which obviously reversed pretty hard the last couple of weeks.
As you mentioned, the RBA pricing for us has really been the real surprise here. The market has run very hard with one-tenth beats on monthly CPI and GDP to now price a decent chance of a hike into the next meeting. We've expected the RBA to be on hold but maintain a hiking bias.
It's pretty unusual to see the board jump on a month's worth or a couple of weeks' worth of data after a 9-0 on-hold vote and having just made large downgrades to their inflation forecast. We think normally they'd wait till the next forecast round if they feel like that's drifting away from them. So I think the next catalyst really on that front is, given that the broader data have weakened on housing and labour market growth, etc., is some speeches by the Deputy Governor and Assistant Governor next week that will give us the direction of travel.
I think even were they to vindicate chance of near-term action, I do think we're into the kind of bad hikes territory for Aussie, just in the sense that we've already seen a pretty broad weakening in the activity side of the data. Thanks a lot for that, Ben. That's the issue that we're seeing, is that because a lot of these are synchronised hiking cycles, the low-yielders, even though the central banks are hiking rates, the low-yielders are not really being able to benefit on the currency side, given these rate hikes, whereas the high-yielders are really being able to monetise that, and you're seeing that in the way that carry performance has played out with really strong returns year-to-date, even though the dollar hasn't done much.
Okay, so now let's move to the debate corner part of the programme, and of course we've had the US Payrolls Report come out today, the headline number really quite a striking one, 62, with upward revisions to the prior months. We've seen the unemployment rate at 4.1. I guess my question is really in the interest and the spirit of a debate, people know, listeners know that we've had a bullish dollar bias, but the question really is why should we not be leaning more and more into this bullish dollar view, given the Payrolls number, and certainly given that at 4.1 EUR, which is two-tenths below what the Fed's forecast was for the year, this is actually a pretty tight labour market, so maybe I'll open it up here, in whichever view, Pat, and Arindam, you want to present your case.
Okay, I'll go first. I think everything you laid out makes sense. I think the delivery of the data is broadly tracking the way our economists have been describing the expected recoupling of the labour market with the broader US economic cycle.
I know we had to deal with a couple of months of, I guess, seasonality distorted data flow, and that did mess with the bullish dollar call a little bit, but I think the pieces are coming together in a reasonably constructive fashion. I suspect on the day-to-day dollar bears are happier than us with the price action, and with the sort of surprise that we got, we would have probably expected a little more follow-through. September pricing hasn't moved a whole lot, but I do think that the bar has been lowered after today for us to get an action in September contingent on a reasonable showing to the CPI next week.
So we'll see. Partly on the dollar, I'd say two thoughts in my mind at this stage. First phase, I just feel like the frustrations that we've been having with the dollar view in the last couple of months sort of echo a similar phase that we went through last year.
If our listeners recall, we were bullish dollars last year. It wasn't working from July onwards. We kept at it through Q3 and then things started to come together rather nicely in Q4 and into early Q1 of this year.
And I feel like we're going through a similar phase now. Then, as now, the yen was playing a bit of a spoiled sport and we had carved out a bit of a separate sort of counter view around the yen because Japan-specific things were unfolding back then around the Takahashi election and the yen weakness that followed. And we have something similar tactically around the yen today as well.
The only difference is that both the dollar and the yen are being played with in almost the exact reverse sequences last year. So I'm just encouraged by us having gone through something similar last year and the end result was not too shabby. The second sort of broad thought in my head is that I'm just asking myself, if you must make a decision error, what would you rather live with?
That we've run our analysis on how the dollar behaves into and after a Fed hiking cycle and we know what the valuation asymmetries are. So do we stick with that view and things go against us because this is an atypical cycle or do we willfully turn a blind eye to that analysis and then history begins to rhyme? I personally know what I would be rather friendly with myself for and therefore I think there's a difference between a wrong decision and a bad decision.
But sort of trading against your own view is kind of the worst kind of bad decision that you can make and trying to avoid that at all costs. So I think it all brought me to having or re-engaging with the constructive dollar view. Yeah, the constructive dollar view, look, we've had it since mid-May, but let's face facts.
All right. We've had, you know, it kind of worked at least in the beginning and then we've had a substantial Fed repricing and we've gotten into this payroll support with the dollar sitting at the lows, the trade weighted index sitting at the lows of the range, DXY sitting at the lows of the range. And we've had the wash hawkish Jackson Hole, you know, showing and the payrolls number today and we're still sitting here without much traction.
So I guess in some way, you know, is the price action telling you we're actually done here? I think that's really what I'm trying to probe is should we just affect the price action and take it for what it is and just sort of call it quits? And in a way, that's the whole point of what we've been saying as well is that really the more higher conviction view is really the carry and the beta positive view of the world rather than the dollar itself.
All right. So I mean, if the dollar hasn't really strengthened when the Fed pricing has gone from minus 100, minus 150 to plus 65 in the next year, then what is it that should cause it to strengthen now, here and now? Why now?
Yeah, I mean, in a similar vein, you can also argue that the repricing of the ECB cycles and the Japan cycles have also advanced significantly over the same period that the Fed repricing has happened. And after all of that repricing, you are still sitting in a shade below 116. And after three historic clips of intervention, Dollyann has not managed to make much headway below 155, despite starting from one-sided valuation and one-sided position.
And I think these are end of the day, these are all sort of storytelling tools. And I think you can tell these stories in every which way possible. Right.
So, you know, for the yen bulls, my case is, how do you deliver a grand total return of minus 1% for the year with three historic clips of intervention? If you don't manage to even get into positive territory with that, when will you? I don't think this debate has much of an end point, but I think the concerns are valid.
And there's a reason why we're having this debate is because things have not played out in the way that we might have anticipated. You have to grapple with this idea that the dollar not keeping up with rates does signal something worrying about institutional strength in the US. I think those concerns are there, they cannot be wished away.
And so I'm willing to grapple with the idea that this will not be a typical Fed hiking cycle for the dollar, in that the quantums of moves we can get would be smaller than usual. I just feel like it's a bit premature to give up on the whole pre-Fed framework altogether, even before we've had the first hike of the cycle. I think a lot of this skepticism rests on the idea that this will be an atypical Fed cycle.
I also feel like that's premature to pass the judgment that this is going to be a shallow hiking cycle and no more. We shall see. Yeah, I mean, another counter to this is, look, this isn't really a pure US exceptionalism.
The Fed isn't the only central bank here who's hiking. Everybody else is hiking as well. You know, if I look at global growth story, we've been talking about this for a while that, yeah, US is doing very well, but so is the rest of the world.
And actually, in a global ranking, US is fairly middling. So this isn't really your US exceptionalism narrative. I think it's a broad global growth narrative.
So does the dollar really deserve to strengthen here is a fair question, I think. And the last point I'll make is also, look, I mean, and I think we touched on this briefly, is that if I look at how much is priced in now for the Fed, we've got just under three hikes cumulatively priced in for the next year. What's the most you can get?
Maybe another 15, 20 basis points. Does that mean this story is already fully priced in and now we should be actually going the other way and going dollar bearish? You know, I mean, you know, if if if 90 percent of the story is priced and the dollar hasn't moved by now, that's that's really my big question mark here.
Patrick, you haven't said anything. Yeah. Look, so I'm I'm a little bit more on the bullish camp, but I will play devil's advocate with you on kind of the, you know, the turning more bearish here.
And I think it's been interesting in a very tactical sense to see, obviously, strong comments from Warsh out of Jackson Hole that have kind of been a little bit refuted or diluted by other core members of the FOMC recently. So President Williams on New York Fed and then Waller earlier this week as well, kind of starting to lay like quantitative guardrails in terms of like how they're going to perceive the next CPI print and how that's going to kind of like factor into their into their decision. And I think after NFP today, you've basically got out like, I don't know, market like two third priced for a hike in September.
Look, if if next week's CPI, the core number comes in on the soft side, there's a good chance that kind of like given Waller's guidance here on the run rates that maybe some of that gets washed out. And then, you know, I mean, NFP is just it's so noisy, right? Like it's not at all inconceivable that, you know, next month kind of unwind some of the strength here.
And then suddenly we're back to similar trading conditions that we had in July and August, where we were riding high midsummer on better data. And then kind of the rug gets taken out from you very quickly. But the URA is still pretty tight, right?
It's been stable at four one. That's two tenths below the Fed. It is and it's below Nehru.
But I guess from my perspective, I I perceive that to be a problem as in when wage inflation is is increasing. And the reality is that, like, even though we had three tenths on on average hourly earnings today, the over a year ago measure is still kind of like plumbing cycle lows. So it's not obvious that, you know, that labor market tightness is transmitting very obviously into inflation pressure.
So my point being is if you get these kind of like underwhelming CPI, PCE outcomes that can maybe still steer the committee in a way that, again, takes some of the legs out of the dollar, even if unemployment is trending at a a low historical level here. To your point, like, I think there's definitely enough evidence here where there's they still absolutely can hike. I mean, there's a four point one, you know, Waller's two point eight percent three month PCE run rate was an interesting comment because that assumes a 30 basis point PCE for August, which seems to set a high bar.
But if you make that up and we won't and we won't get PCE before the meeting in any case. Right, right. But like if you extend that to a six month annualized PCE print, 30 ticks gets you something closer to like three point three percent, which is still presumably not really what the committee wants to be seeing.
Right. So there's a few ways you can kind of look at this. And my sense just from from listening to Warshaw and Jackson Hole is that they're concerned with the levels.
Right. The levels are simply too high. You can talk about that with unemployment, with inflation.
So I think the case is straightforwardly there. But in terms of like, you know, the potential devil's advocate bear case of the dollar, you could see a situation where one or two data prints start to take the knees out. Global growth remains strong, as you say.
I think our economists are looking for four consecutive above trend global growth quarters upcoming. That has proven to be a kind of a persistent dollar headwind, even if it hasn't stopped, you know, or led to outright dollar depreciation. So it's definitely a little bit muddy, I think, in a tactical perspective.
I like the case for dollar up here, but it's certainly not an absolutely decisive clear cut case. Sure. And I think the inflation principle would tell us more next week, but I guess one point you've been making is that for the dollar, it's been more correlated with not the cumulative Fed pricing, so to speak, but more so with what's what the projection is near term, isn't it?
So in that sense, the September meeting is is quite meaningful. Yeah, exactly. And that beta has been about one percent in DXY for every 10 basis points in September FOMC pricing.
That's a little bit of a higher beta than what we typically see on dollar rates models, which tend to be more like 25 basis points is worth one percent in the broad dollar. So there is quite a bit to play for, given kind of what's in the price. And again, given kind of the questions that Randall alluded to on just like the policymaking side and how these things are being constructed.
So, yeah, the key words there, I think the key word that when you said that's quite a bit to play forward in the same breath that it's about one percent on DXY. So I think I think that's in the context of the range that we've seen, I think just sort of clarifies that really at the end of the day, these are narrow ranges that we're playing, given how synchronized the global growth, inflation and central bank cycles are really. And the way this is really manifesting and affects, I would say, through rates higher for longer and people searching for inflation protection, looking for the high yielders versus the low yielders and the commodity exporters versus the importers.
So I think that's where it sort of ends up as and that's why carry is the high conviction view. I think I should just wrap up by saying that, as is obvious, there's a lot of counterpoints, lots of reasons to be constructive on the dollar, lots of reasons to be sort of having a counterpoint, you know, counter view as well. To us, when we laid out sort of our decision tree, we can make the case for being range bound, for the dollar being range bound, or we can lay the case, I think, for being more constructive and bullish on the dollar.
But we really find it very, very hard to be laying the case out for for being bearish the dollar. And the reason for that is, is the following. I think the first thing is understated that from a valuation perspective, you know, the dollar is undershooting what rates markets have done.
The trade weighted index, more broadly, is three to four percent cheap relative to where it should be given given what the Fed pricing has done relative to other central banks. Euro dollar fair value is close to 112. So the starting point very much is that if there is a delivery in the off chance in September, there's actually more ground that the dollar has to make up to in sort of that mean reversion.
And the second thing that I'll say is that if you do get Fed hikes, you know, whether it's September or whether it's December, as is our economist base case is actually December, what you're going to find is that the US yield supremacy is still very strong. The dollar will still be yielding more than 50 or 55 percent of currencies globally, you know, if the Fed does hike rates. And that's that puts it, you know, that number that, you know, that the dollar yields over, you know, at a two, two and a half decade high.
If I look at U.S. yield spreads to the rest of the world, that's sitting at four decade highs. So, you know, without sort of this either the growth completely collapsing in the U.S. or the Fed cutting rates or this institutional credibility really becoming quite large, I struggle to see and make the case for a large dollar down move. Famous last words, who knows?
But certainly our biases that we are going to be leaning into this more constructive story for the dollar, particularly going into the next couple of weeks. So we're going to stick to that. There's some seasonality that is dollar supportive in September as well.
And I would say the preference here is on the dollar versus the lower yielding candidates, currencies like stocky CAD. CAD had a pretty bad employment report today, isn't it? You know, these are currencies which yield less than the dollar.
And it's just worth having some some sort of sort of, you know, underweight versus versus the dollar in these currencies. So so I'll stop there. Thanks for listening.
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This episode was recorded on September 4th, 2026.
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