The Japanese yen weakened to a 32-year low. A less dovish Bank of Japan will reinforce the MoF’s actions and an undervalued JPY can be an automatic stabiliser. Therefore, economists at HSBC expect USD/JPY to tick down by year-end and further in 2023.
Light at the end of the tunnel
“The MoF may get some help from the BoJ if the BoJ relents on its dovishness. Indeed, the BoJ’s unlimited bond purchases are not only in stark contrast with the Federal Reserve (Fed), which is raising rates and shrinking its balance sheet but also in contradiction with the MoF’s FX intervention, which drains JPY liquidity.”
“An undervalued JPY may discourage outward direct investment and prompt more repatriation of overseas income among Japanese corporates, while it may attract direct investment from foreigners. Now that Japan’s borders are reopening, an undervalued yen may also help raise Japan’s tourism revenue which could help offset the large fuel trade deficit going forward.”
“We believe that USD/JPY is close to peaking and would correct modestly at the end of the year and further in 2023.”
