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Japanese yen: what's next?
Tuesday 17 September 2024
Cross Asset
Japanese yen: what's next?
September 2024 | A series of weak US data in July questioned the market narrative of a soft landing and brought back fears of recession. The rise in the July unemployment rate to 4.3% (latest reading in August is 4.2%) triggered a significant market concern about a possible weaker-than-expected US labor market, raising the risk of an impending recession. We do expect a significant slowdown of the US economy, but not a recession. We expect a significant deceleration in the next few quarters, consistent with a broader weakening of many labor market indicators.
01 | The yen carry trade* is being unwound sharply due to weak US data and a hawkish surprise from the BoJ, with the yen's dislocation from its fundamentals remaining large.
02 | Weak global growth and the BoJ on diverging path from most Central Banks in the world are tailwinds for the JPY. A fast trade-weighted appreciation, though, would require 1) recession or 2) a persistent hike cycle from the BoJ.
03 | The repatriation of Japanese foreign assets is not a material risk for now, but its potential for a large market impact always warrants attention.
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