EM FX: Rally in Yen Takes Focus Across Markets, Fed Communication Eyed

The rally in the Japanese yen has dominated focus across global markets this morning, with gains for the currency accelerating through the European open. Notably, USD/JPY is through 151.94, the low from last week and key pivot level on several occasions since 2022, a move which has prompted a substantial acceleration in losses for EM/JPY crosses.

• As noted earlier, MXN/JPY is the standout in emerging markets given the importance of the yen as a funding currency for carry trades in LATAM. See more on that above.
• HUF/JPY losses briefly hit 2%, placing the cross below 41.00 for the first time since March. Meanwhile, the zloty is underperforming its regional peers after headline inflation crossed at +4.2% Y/Y in July, missing expectations of +4.4%.
• Losses for ZAR/JPY are more moderate at around 1%. A firmer commodities complex, evident in the >1.5% recovery in crude prices, is likely accounting for the rand’s outperformance this morning, with USD/ZAR around 0.3% lower today.
• Eurozone inflation data coming up shortly and the Fed rate decision this evening will be closely watched moving forward. For the latter, immediate attention is on any signals about rate cuts beginning in September.