Bank Of America: Three JPY Catalysts For Autumn

Bank of America note that "the JPY space has been quiet without domestic catalysts during the summer. However, the fall will bring three key catalysts for JPY, in our view:"

1. "The increased political uncertainty owing to PM Suga's falling popularity and two elections (LDP's presidential election and general election) could lead to a leadership change."
2. "The gov't is launching a new university endowment fund with potential flow into foreign assets in the magnitude of several trillions of yen. The investment timing is uncertain, but the gov't aims to start by end-FY21 and it could start as soon as in Q421."
3. "Japan Inc. has slowed down outward M&A this summer likely because of increased uncertainty over the Delta variant's economic impact. However, with a rebound in corporate profits, a potential reduction in uncertainty could lead to a reacceleration in outward M&A."

• "We believe the political risk will support JPY vol in the next 2-3 months, while the launch of the university fund and a potential reacceleration in Japan's outward M&A could drive the basic balance of payments into a negative territory and increase JPY selling. We expect USD/JPY to rise to Y116 by the year-end."