Seen as nothing but disappointment in 2023, yen bulls are eyeing potential gains as the currency climbs to its strongest level in a month.
While forecasts that the yen is poised for a 10 percent rally as Japan abandons its overly dovish monetary policy have yet to yield results, there are growing signs that the currency is at a turning point.
JPMorgan Chase & Co. According to economists, major economies are more likely to collapse as central banks are forced to continue tightening amid tighter-than-expected inflation.
Can take advantage of safe harbor streams
Considering this possibility, it is evaluated that the yen, whose exchange rate is close to the low levels seen in 1971, is at a level suitable for benefiting from safe-haven money flows.
Anticipating the yen’s rise, Vanda Research Strategist Viraj Patel said: “We are getting closer and closer to the risk of eventual global recession, and the probability of that is only increasing as we enter the year-end and next year. It’s not about the catalyst being wrong, it’s just a matter of timing now,” he said.
The Japanese currency has surged 3.6 percent this month, outpacing nearly all G-10 currencies, after the worst performance among its peers in the first half of the year. The yen slumped below 140, which is seen as a psychological level against the dollar, after a five-day bullish streak.
However, investors seem to have priced a stronger new price in the options market before the Bank of Japan’s interest rate decisions at the end of this month.
Recession pricing and forecasts
UBS Global Wealth Management sees a recession in the US as the key to the yen’s performance.
While Swiss money managers revised their forecasts downward, Dominic Schnider, the bank’s global head of foreign exchange and commodities, expressed his bullish expectation that the Japanese currency would complete 2023 almost 9 percent stronger than 128 levels.
Noting that the yen rose in the regional banking crisis in the USA in March, Schnider said, “Having an upside forward position in the yen also functions as a hedging tool in the context of the portfolio in case of stress in the financial market again. “I expect the yen to rise when US data starts to moderate,” he said.
Capital Economics also stated that the yen will strengthen and pointed to 130 as the year-end target. While economists participating in the Bloomberg survey forecast 135 in the dollar/yen rate for the next six months, futures markets point to a more moderate appreciation path.
Some banks, on the other hand, foresee a depreciation of the currency. JPMorgan revised its year-end exchange rate target to 152 from 142 on Friday, saying it expects the Japanese currency to depreciate 9 percent. Bank of America, on the other hand, predicted a modest 4 percent decline by the end of the year, pointing to the 145 level.