JPY: HSBC suggests safe-haven status may return

HSBC: Japanese Yen Poised for Potential Rebound Amid Shifting Market Conditions

According to HSBC analysts, the recent decline in the Japanese Yen (JPY) aligns with the impact of elevated energy costs and Japan's significant oil and gas import deficit. However, they caution that this economic landscape could change rapidly.

They emphasize that if global financial markets tighten, US Treasury yields decrease, or investor caution increases, the Yen could strengthen swiftly. The future direction of USD/JPY will largely depend on movements in US yields.

Factors Behind the Yen's Recent Weakness

The Yen's depreciation is largely attributed to unfavorable trade conditions, particularly due to rising energy prices and Japan's considerable net oil and gas deficit, which is projected to be around 2.7% of GDP in 2025.

Potential for a Shift in Yen Dynamics

HSBC warns that the greater risk lies in a possible change in how the Yen behaves. Should global financial conditions suddenly become more restrictive, coupled with increased stock market volatility and declining US Treasury yields, the Yen could experience a rapid turnaround.

Historically, in similar scenarios, USD/JPY has dropped in most cases—about 85% of weekly observations since 2006, according to HSBC's research.

What Could Influence USD/JPY Going Forward?

• If US yields continue to climb alongside higher oil prices, USD/JPY may rise further, even with the risk of foreign exchange intervention.
• On the other hand, if risk aversion increases and US Treasury yields decline—possibly due to growing concerns about economic growth—the Yen could stage a swift recovery.

(This article was produced with assistance from an AI tool and subsequently reviewed by an editor.)