Japanese Yen
The yen's next leg isn't a fiscal story, it's an inflation one, and the BoJ is about to admit it. We lay out why a September pivot sends USD/JPY toward 99, and why global risk assets won't pay the price.
An acute shortage of AI hardware will support tech stocks into year-end. However, AI companies may need to ultimately generate $10 trillion per year in revenue to justify their capex. Barring a massive increase in productivity growth, this will be very difficult to achieve. Despite today’s Treasury announcement of upsized buyback operations, bond yields are likely to remain elevated over the coming months. Rising crack spreads have reduced the demand for crude, which is not encouraging for global growth. On the FX front, recent intervention to support the yen will probably be insufficient, but there is significant long-term upside for the currency.
MoF and the US Treasury stepped in together to defend the yen, but even joint intervention cannot reset the fundamentals still weighing on the currency. Washington's pursuit of its own incentives, meanwhile, offers another glimpse of a more activist US Treasury.
The dollar has had a strong run but its key supports from Fed repricing, positioning, and terms of trade are starting to fade. We close our tactical long USD positions and turn to short USD/JPY, where intervention risk makes yen shorts look increasingly dangerous.
