Japanese Yen: Structural outflows and intervention watch – MUFG

MUFG’s Derek Halpenny argues that the Japanese Yen remains under pressure from structural portfolio and FDI outflows, even as US yields correct and Washington maintains opposition to Yen weakness. He highlights NISA-driven foreign equity buying, demographic-driven FDI trends, and suggests USD/JPY may be near a turning point as policy and rate spreads eventually support the Yen.

Yen weighed by flows and policy

"What we can see once again though is that the reprieve for the yen is marginal (today’s gain is USD-related) with the rates/FX link for the yen still relatively weak."

"Intervention in last July / early August has distorted the link with rates but what the movement of the yen does indicate is that there are still some structural flows that continue to weigh on yen performance and those flows could well be slow to change."

"This expanded NISA limit will likely mean this scale of outflow persists given the erosion of savings held in deposit savings due to higher inflation and given strong equity market returns, in particular in the US."

"The mid-term election results in the US is unlikely to impact the US-Japan relationship and the strong message emanating from Washington over its opposition to the continued weakness of the yen."

"We still suspect the yen is close to a turning point and market rates and/or policies by the government to encourage greater sums of capital to remain in Japan should have a positive impact on the yen."

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