Structurally still weaker – Commerzbank


The JPY has been on a wild ride in recent weeks, gaining over 14% against the US Dollar (USD) in just 18 trading days before retreating about 4% to stabilize around 147. Structurally, we continue to expect a weaker JPY, albeit now from a higher level, Commerzbank’s FX strategist Volkmar Baur notes.

USD/JPY to strengthen over the course of next year

“USD/JPY has had a wild ride in recent weeks. First came lower than expected inflation figures from the US, closely followed by a series of well-timed interventions by the Bank of Japan (BoJ) in the currency market. The BoJ then surprised everyone by raising interest rates, while the Fed announced on the same day that it would cut rates in September, before a weak US jobs report two days later sent USD/JPY even lower.”

“In 18 trading days, the JPY gained over 14% against the USD. However, this was not entirely to the liking of the BoJ. As a result of its subsequent verbal intervention, the JPY lost nearly 4%. All in all, USD/JPY has now stabilized at just under 147 instead of around 160. This is despite the fact that not much has changed fundamentally on the Japanese side. But let’s take it one step at a time.”

“We expect the USD to regain some ground against the JPY by the end of the year. The BoJ’s latest rate hike should then lead to a temporary strengthening of the JPY until it becomes clear that a real rate hike cycle is not on the cards. We therefore expect the JPY to weaken again and USD/JPY to strengthen over the course of next year.”