Scotiabank strategists Shaun Osborne and Eric Theoret report that the Japanese Yen (JPY) has appreciated by over 0.7% against the US Dollar (USD), although it remains a relative underperformer compared to most other G10 currencies in the current environment of broad-based USD weakness [1]. The improvement in risk sentiment is attributed to relief over a short-term reprieve in the US/Iran conflict, which has contributed to a near-$20 per barrel decline in crude oil prices on the day [1]. This drop in oil prices is seen as materially beneficial for Japan’s terms of trade, supporting the Yen’s strength [1].
Additionally, Japan’s labor cash earnings data was reported as stronger than expected, providing further support for the Yen and signaling continued progression toward Bank of Japan (BoJ) tightening [1]. Scotiabank strategists are targeting a retracement in USD/JPY toward the 50-day moving average just above 157, as well as the January 'intervention' gap in the mid-155s [1].
While the Yen has gained, its performance is still lagging behind other G10 currencies, suggesting that the currency’s appreciation is part of a broader trend of USD weakness rather than a uniquely strong move for the Yen [1]. The combination of improved labor data and lower oil prices is seen as reinforcing the case for BoJ tightening, which could further support the Yen in the near term [1].
CONCLUSION
The Japanese Yen has strengthened against the US Dollar, supported by lower oil prices and robust labor earnings data, though it remains a relative underperformer among G10 currencies. Scotiabank expects further retracement in USD/JPY, with targets above 157 and in the mid-155s. Market sentiment is moderately positive, driven by improved risk outlook and expectations for BoJ tightening.