Japanese Yen: How are BoJ policy and capital flows supporting gains against US Dollar? - Commerzbank

The Japanese Yen’s sharp rebound has taken USD/JPY below 157 for the first time since early September, notes Commerzbank’s Volkmar Baur. He sees support for JPY over the coming months from Japanese inflation settling above 2%, a Bank of Japan (BoJ) more willing to respond, continued repatriation of Japanese capital and overseas purchases of Japanese bonds.

Can policy and capital flows sustain Yen gains?

"The Japanese yen strengthened significantly at times yesterday, with USD/JPY falling below the 157 mark for the first time since Scott Bessent’s verbal intervention in early September."

"Inflation in Japan appears to be settling around 2% and is even showing signs that it could rise further. While headline inflation came in at 2.1% this morning, the core rate excluding energy and fresh food rose to 2.3%. And unlike in the past, the Bank of Japan increasingly appears willing to respond appropriately to these developments."

"At least that was the message on Wednesday, when Deputy Governor Himino told parliament that inflation was close to the 2% target and that normalising monetary policy too slowly could therefore harm the economy."

"In the week to 17 October, Japanese investors sold foreign bonds for the fifth consecutive week and repatriated the proceeds. At the same time, foreign investors were net buyers of Japanese bonds for the third consecutive week."

"Both developments, further monetary policy normalisation by the Bank of Japan and capital flows increasingly returning to Japan, are likely to continue over the coming months and should provide further support for the JPY."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)