Synopsis:
HSBC has lowered its year-end USD/JPY forecast to 154 (from 160 previously), reflecting the stronger yen momentum driven by BoJ rate hike expectations, rising bond yields, and renewed safe-haven demand. However, HSBC warns that JPY optimism has overshot, given record speculative long positioning. While the yen remains supported, HSBC still sees an upward trajectory for USD/JPY from current levels, as a sharp US slowdown is not their base case.
Key Points:
1️⃣ JPY Among 2025’s Strongest Currencies 📈
- Expectations of a more sustainable BoJ rate hike cycle have boosted the yen.
- Rising Japanese bond yields have added to JPY strength.
2️⃣ Safe-Haven Demand Revived, But May Be Overdone 💵
- Concerns over a weakening US economy have supported JPY.
- However, HSBC does not expect a sharp US slowdown or persistent risk aversion.
3️⃣ Record JPY Long Positioning Suggests Overcrowding ⚠️
- Speculative long JPY positions are at extreme levels, suggesting a risk of correction.
- Market sentiment may have overshot fundamental drivers.
4️⃣ USD/JPY Still Expected to Drift Higher from Current Levels 📊
- HSBC lowers its year-end target to 154 from 160 but still expects a gradual upward move.
- Policymakers in both Japan and the US are voicing concerns over excessive JPY weakness.
Conclusion:
HSBC revises USD/JPY’s year-end forecast down to 154, citing BoJ policy expectations and safe-haven flows. However, overstretched JPY positioning and a stable US outlook suggest limited further JPY gains, with USD/JPY still expected to trend upward from current levels.
