Stronger Yen Cuts Regional FX Pressure, But Market Expectations Limit Upside
The Japanese Yen has been a key player in reshaping broader macro dynamics, and its recent appreciation has eased trade-weighted exchange rate pressures across Asia-Pacific currencies.
This relief valve effect has provided room for nominal appreciation in regional peers, according to Geoff Yu at BNY. The Yen's trade-weighted importance across Asia has allowed its strength to offset US Dollar legs and lower effective exchange-rate headwinds.
However, high market expectations have created a high bar for further USD/JPY downside, limiting the near-term upside of the Japanese Yen. With a September BoJ rate hike fully discounted by interest rate markets, policymakers must follow through with concrete rate increases to sustain the Yen's upward momentum.