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FOREX: HSBC’s Base Case is for USDJPY Rebound to 155-160 Range

FOREX
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  • HSBC suggest that the optimism for the Japanese yen might be losing steam and see USDJPY rebounding to a 155-160 range in the coming months/quarters. The bank believes the currency has overshot valuations and cite speculative positioning as a reversal risk, however, a material change in GPIF asset allocation is a risk to their view.
  • HSBC’s multiverse modelling showed that while underlying drivers have indeed turned in favour of Yen strength, USDJPY has still undershot their modelled range (153.12-155.73 as of 21 Feb).
  • The bank argues that a degree of JPY optimism – related to expectations about a more hawkish BoJ and about domestic investors potentially pivoting from foreign assets to domestic assets – has already been priced in. On positioning, HSBC highlights that as of 18 Feb, long positioning was just below the multi-year high reached on 24 Sep 2024. In z-score terms, that’s ~2 standard deviations above the five-year average currently.
  • Separately, HSBC note the GPIF has to announce their next 5-year plan in March, before the start of the new fiscal year in April. Weekly portfolio flow data indicate it is not clear if there really is a full-on pivot by non-retail domestic investors. 
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  • HSBC suggest that the optimism for the Japanese yen might be losing steam and see USDJPY rebounding to a 155-160 range in the coming months/quarters. The bank believes the currency has overshot valuations and cite speculative positioning as a reversal risk, however, a material change in GPIF asset allocation is a risk to their view.
  • HSBC’s multiverse modelling showed that while underlying drivers have indeed turned in favour of Yen strength, USDJPY has still undershot their modelled range (153.12-155.73 as of 21 Feb).
  • The bank argues that a degree of JPY optimism – related to expectations about a more hawkish BoJ and about domestic investors potentially pivoting from foreign assets to domestic assets – has already been priced in. On positioning, HSBC highlights that as of 18 Feb, long positioning was just below the multi-year high reached on 24 Sep 2024. In z-score terms, that’s ~2 standard deviations above the five-year average currently.
  • Separately, HSBC note the GPIF has to announce their next 5-year plan in March, before the start of the new fiscal year in April. Weekly portfolio flow data indicate it is not clear if there really is a full-on pivot by non-retail domestic investors.