The analysis team at HSBC suggests that the USD-JPY will move lower in the months ahead, as they believe that the balance of cyclical and structural forces are gradually tilting to the downside for the pair.
Key Quotes
“On the cyclical front, our analysis shows that there has been a slight tendency for the pair to react less to higher US yields and more to lower US yields. We believe this highlights the rising influence of “risk on-risk off” where the JPY would benefit as a safe-haven currency.”
“If US yields struggle to push higher from here, this could drag USD-JPY lower. But even if yields do rise, USD-JPY may struggle to gain. Higher US yields, particularly when they move sharply higher, can increase risk aversion, pushing equity markets lower and driving us into a risk off world. In that environment, the JPY is likely to be the best performer in G10.”
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