Economists at HSBC believe that a renewed focus on the succession of the Bank of Japan (BoJ) and potential policy shifts could result in a strengthening of the JPY.
Increasing the balance of the current account should also be helpful.
“A move lower in USD/JPY over the coming few weeks will primarily depend on the outlook for BoJ policy change, but other forces that are more medium-term (like an improved current account balance) should also be helping in the background.”
The BoJ Governor Kuroda’s term comes to an end on April 8, but the process of finding a replacement is likely to get more attention in February. Even if that policy change has to wait a few months, this will keep the story of a possible change front and center in the coming weeks.”
“We think the ingredients are in place for a renewed move lower in USD/JPY,” the authors write. “The JPY is still undervalued (based on its real effective exchange rate) and residents are underhedged.”