The yen's appreciation has been driven mainly by Japan-side factors, with USD/JPY falling temporarily from around ¥160 to the first half of the ¥150s. The pursuit of a weaker-dollar policy driven by US factors is being identified as a potential new market theme.
USD/JPY fell sharply, declining from around ¥160 to the first half of the ¥150s in a short period. Investor position adjustments and changing market views are seen as the main drivers.
Japan-side factors are at the center of the yen's appreciation. Remarks by Secretary of the Treasury Scott Bessent concerning Japanese policy were the catalyst, prompting discussion of rising expectations for a Bank of Japan rate hike and changing perceptions of fiscal risk. Expectations of an asset-allocation change by GPIF have also influenced the debate.
The market is pricing in expectations for a Bank of Japan rate hike and a return to fiscal discipline, while taking the view that yen-selling factors could diminish depending on progress in fiscal consolidation. The Bank of Japan and fiscal and money-flow dynamics are being reassessed.
The main driver of further yen appreciation is likely to shift from the Bank of Japan to the US, rather than remain solely a Japan-side factor. Depending on Federal Reserve developments and the impact of fiscal consolidation, the pursuit of a weaker-dollar policy could become a market theme.