Synopsis:

Nomura sees potential for further yen appreciation, with USD/JPY possibly testing levels below 140 in the immediate future, while maintaining a year-end forecast of 148.

Key Points:

1. Immediate Yen Appreciation Risk:

   • Near-Term Outlook: Nomura highlights the risk of further yen appreciation in the near term, with USD/JPY potentially testing levels below 140 soon.
   • US Economic Uncertainty: It is still unclear if the US economy is heading into a downturn, which adds to the uncertainty in the currency markets.

2. Longer-Term USD Strength Potential:

   • Possible USD Rebound: There could be renewed upward pressure on USD in the October-December period, particularly if Donald Trump wins the upcoming US presidential election.
   • Maintained Forecast: Despite near-term yen appreciation, Nomura maintains its end-December USD/JPY forecast of 148.

3. Market Dynamics:

   • Impact of Fed Rate Cuts: If share prices do not rise when the Fed begins cutting rates, speculation could drive US interest rates lower, further strengthening the yen.
   • Japanese Investor Behavior: Yen strength could persist if Japanese investors accelerate their covering of short JPY positions.

Conclusion:

Nomura sees a risk of USD/JPY testing levels below 140 in the near term due to potential further yen appreciation. However, they maintain a forecast of 148 for the year-end, considering possible USD strength later in the year, especially around the US presidential election period. The impact of Fed rate cuts and Japanese investor behavior will be crucial factors influencing this dynamic.