HSBC is warning of renewed downside pressure on the Japanese yen in the near term, citing a combination of
- U.S. monetary policy risks,
- domestic political uncertainty,
- and cautiousness from the Bank of Japan.
While HSBC economists believe the BoJ’s recent upward revisions to its inflation and growth forecasts strengthen the case for a 25 basis point rate hike in October, they note that the central bank may choose to wait for the Federal Reserve to act first before moving further toward policy normalisation.
In a note to clients, HSBC outlined two key reasons for its near-term bearish view on the yen:
Firstly, USD/JPY remains highly sensitive to
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hawkish Fed risks,
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strong U.S. economic data,
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and a still-dovish Bank of Japan. All three factors have been present in recent sessions, pushing the yen weaker against the dollar.
Secondly, the USD/JPY pair has recently been tracking Japanese government bond (JGB) yields, which remain under pressure amid growing domestic uncertainty.
- HSBC highlights risks stemming from potential shifts in the ruling Liberal Democratic Party (LDP) leadership and concerns over Japan’s fiscal trajectory
HSBC expects further JPY weakness, BOJ may wait for Fed before next hike
