Economists at HSBC expect the Japanese Yen to strengthen against the US Dollar next year.

More downward pressure ahead

“We believe the JPY’s near-term fortunes are likely to remain more tied to the US monetary policy outlook than that of Japan.”

“It is worth noting that the relationship between USDJPY and its yield differentials has become less stable since Japan’s Ministry of Finance (MoF) took action to support the JPY on 22 September. More intervention is possible, so as to curb the upward momentum in USDJPY.” 

“We think that an undervalued JPY should help improve the fundamental backdrop. For example, a weak JPY may encourage tourism revenue, probably narrowing the trade deficit going forward, especially now that Japan has lifted most travel restrictions. A weak JPY may also discourage outward direct investment and attract foreign direct investment.”