Is the Japanese Yen gaining appeal as a hedge against the US Dollar? - OCBC

The Japanese Yen (JPY) is becoming more attractive as a portfolio hedge as US-centric risk aversion offers less dependable support to the Dollar, according to OCBC’s Sim Moh Siong and Christopher Wong. They note that, despite easing AI concerns, changing AI-related market risks are restoring the JPY’s relevance in portfolios. Their outlook is for the Fed, BoJ and ECB to leave rates unchanged, although a hawkish hold by the Fed could leave a December hike on the table.

Is the Yen reclaiming its role as a portfolio hedge?

"AI concerns have eased, but the JPY’s return as a portfolio hedge is worth watching. It is too early to call an AI bust. Investors will increasingly demand stronger revenues and cash flow to justify higher capex, but for now the jitters look more like noise than a sustained reversal."

"We expect the Fed, BoJ and ECB to hold this week. For the Fed, the key question is whether the AI-led sell-off materially tightened financial conditions. We doubt it changes the policy path."

"A hawkish October hold should keep a December hike in play, particularly with energy prices adding to upside inflation risks."

"USD support remains intact, but US-centric risk-off is becoming less reliably USD-positive. That makes the JPY increasingly attractive as the cleaner hedge."

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