JPMorgan: Medium- to Long-Term Bearish Yen Outlook Unchanged
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JPMorgan maintains its medium- to long-term bearish outlook for the Japanese yen despite recent surprises and significant volatility. Since their last publication, USD/JPY fell over 3%, though the yen's performance remained middling among G10 currencies. A coordinated currency-check between the Bank of Japan and the Federal Reserve Bank of New York on January 23 drove USD/JPY sharply lower from 159 to 152. However, the pair quickly rebounded, suggesting unilateral intervention may only materialize if USD/JPY exceeds 160. On February 8, the LDP won a landslide 316 seats in the lower house elections, far exceeding the expected 233. Contrary to typical dynamics, USD/JPY fell to 152, driven by broad dollar weakness, short-yen position unwinding, and market perception that the LDP victory will strengthen fiscal discipline. While the supermajority increases the likelihood of a consumption tax cut, funding sources remain uncertain. Utilizing unrealized foreign exchange gains from the FEFSA faces legal hurdles, and changing the GPIF portfolio allocation shows no immediate signs. Consequently, JPMorgan expects USD/JPY to eventually break out of its current range.