Goldman Sachs Research addressed the potential allocation shift by Japan’s Government Pension Investment Fund (GPIF), and the likely implications for the Yen.

"The higher probability of a shift in flows relative to earlier this year, combined with a faster pace of tightening by the BoJ, means that valuation can play a bigger role in JPY performance as the policies that have justified the Yen’s undervaluation for years appear to be shifting in a more constructive direction," GS notes.

"That leaves short USD/JPY a much more attractive portfolio hedge now than it has been in recent years, especially with the likelihood of greater AI-related volatility that could push both equities and yields lower together—a market regime that typically benefits the Yen most," GS adds.