At the end of last week, Japanese Finance Minister Kato indicated that he would look to talk about FX with US Treasury Secretary Bessent this week. This has spurred investors to move back into long JPY positions. On a 5-day view, the JPY is the best performing G10 currency, Rabobank's FX analyst Jane Foley notes.
Scope for a move to USD/JPY 140 on a 12-month view
"From Japan’s point of view, the most important element of its trade talks with the US is likely the issue of concessions for its auto exporters. While Japan has a strong hand in the trade talks given its significant FDI into the US, the timing of Japan’s Upper House election means that the government will be under pressure not to offer the US too many concessions. Due to inflation risks, it is possible that the MoF would not be too averse to a moderately stronger value for the JPY over the medium-term, although it is not clear how this would be implemented."
"While Uchida’s comments were encouraging for JPY bulls, last week’s release of weak Q1 GDP data (which showed the economy shrinking for the first time in a year), underscores the difficult position of BoJ policymakers. In view of the headwinds to growth coming from Trump’s tariffs, the market is currently only priced for around 12 bps of rate hikes on a 6-month view."
"While we see risk that USD/JPY could hold around the 145 level on a 1-to-3-month view, we continue to see scope for a move to USD/JPY 140 on a 12-month view on the assumption that the BoJ will be able to gradually tighten monetary conditions further this cycle."
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