Japanese Yen gains against US Dollar as BoJ policy and capital flows lend support - Commerzbank

Japanese inflation stabilising above 2% and an increasingly responsive Bank of Japan (BoJ) are among the factors that Commerzbank’s Volkmar Baur expects to support JPY in the coming months. He also cites continued repatriation of Japanese capital and foreign purchases of Japanese bonds. Against this backdrop, he highlights a marked recovery in the Japanese yen, with USD/JPY falling below 157 for the first time since early September.

Policy outlook and capital flows lift yen

"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."

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