Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the turn in the tone of JPY since the beginning of the new half financial year in Japan is at best loosely related to renewed confidence in the outlook for the US economy and higher rate expectations in the US.
“The probability of a rate hike in the US by year end was already well formed before October, lifted by Fed member guidance in the lead up to the Jackson Hole symposium on 26 August.
The rise in global bond yields in recent weeks, has lifted the long-end USD/JPY yield advantage, and this may be contributing to a stronger USD, but there is a range of factors driving up bond yields globally, some this relates to the shift in BoJ policy to include Yield Curve Control.
The change in tone in the JPY may simply be a reversal in excessive strength in the first half of the year. The rise in global bond yields themselves may be supported by a weaker JPY, helping to alleviate fears that the BoJ is losing its battle to ease monetary policy and raise inflation in Japan.”