USD JPY - FUNDAMENTAL DRIVERSJapanese yen strength over time. While the yen underperformed during the global monetary tightening phase, in our view the currency will likely outperform as tightening cycles eventually come to an end and central banks turn to easing. Yen outperformance over time should also be supported by U.S. recession in H2-2023 as well as recent actions by the Fed, which have made U.S. dollar liquidity more readily available. And while the likelihood of a hawkish Bank of Japan (BoJ) monetary policy shift has perhaps diminished a little, if the global financial sector proves surprisingly resilient, the risk of a further policy adjustment from the BoJ could still reinforce the outlook for yen gains over the medium term as well.
