HSBC is warning of renewed downside pressure on the Japanese yen in the near term, citing a combination of
- U.S. monetary policy risks,
- domestic political uncertainty,
- and cautiousness from the Bank of Japan.
While HSBC economists believe the BoJ’s recent upward revisions to its inflation and growth forecasts strengthen the case for a 25 basis point rate hike in October, they note that the central bank may choose to wait for the Federal Reserve to act first before moving further toward policy normalisation.
In a note to clients, HSBC outlined two key reasons for its near-term bearish view on the yen:
Firstly, USD/JPY remains highly sensitive to
-
hawkish Fed risks,
-
strong U.S. economic data,
-
and a still-dovish Bank of Japan. All three factors have been present in recent sessions, pushing the yen weaker against the dollar.
Secondly, the USD/JPY pair has recently been tracking Japanese government bond (JGB) yields, which remain under pressure amid growing domestic uncertainty.
- HSBC highlights risks stemming from potential shifts in the ruling Liberal Democratic Party (LDP) leadership and concerns over Japan’s fiscal trajectory. If political leaders lean toward more pro-easing fiscal or monetary policies, HSBC warns, the yen could weaken further.
The note underscores the complex cross-currents facing the JPY, with global rate dynamics and local political risks both contributing to its vulnerability.