USDJPY near 160 has held steady for now. Stephen Jen and Joana Freire argue that this calm is difficult to reconcile with Japan’s broader economic balance.
In their latest Briefing Note, Stephen and Joana describe the yen as caught between two opposing forces. Negative real interest rates in Japan and elevated oil prices continue to support USDJPY, while valuation, Ministry of Finance intervention risk and Japan’s weakened international purchasing power point in the other direction. Their view is that the next major move in USDJPY is likely lower, although higher oil prices may delay the timing.
The note places Japan within a wider global currency framework. The US dollar has been supported by years of capital inflows into US assets, leaving it overvalued relative to the needs of the US tradable economy. Japan faces the mirror-image problem. USDJPY’s capital-market level remains high, while the level that would better balance Japan’s economy appears materially lower.
Stephen and Joana argue that Japan would be more balanced with USDJPY closer to 120 to 130, with 125 described as a more stable level. Around 160, the weak yen supports exporters and equities, but it also pressures consumers, reduces Japan’s international purchasing power and weighs on JGBs.
Key quote
“The next big move in USDJPY, we believe, is down.”
Inside the note
The research covers:
- Different zones of USDJPY
- October 1998
- USDJPY may be stuck in a range for now
- The next big move in USDJPY is likely down
- High oil prices and the JPY policy
- Stability versus sustainability: the case of the Chinese RMB
- Bottom line
This research is relevant for professional investors assessing Japan, foreign exchange, carry trades, intervention risk, oil shocks and global capital flows.
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