Japanese Yen offers growing appeal as a hedge against US Dollar - OCBC

The Fed, BoJ and ECB are expected to leave rates unchanged, according to OCBC’s Sim Moh Siong and Christopher Wong, although a hawkish Fed hold could leave a December hike on the table. Against a changing backdrop of AI-related market risks, they note that the Japanese Yen (JPY) is re-emerging as a portfolio hedge. AI concerns have subsided, but risk aversion centred on the US is viewed as providing less dependable support for the Dollar, enhancing the JPY’s appeal as a hedge.

Yen re-emerges as a portfolio hedge

"AI concerns have eased, but the JPY’s return as a portfolio hedge is worth watching. It is too early to call an AI bust. Investors will increasingly demand stronger revenues and cash flow to justify higher capex, but for now the jitters look more like noise than a sustained reversal."

"We expect the Fed, BoJ and ECB to hold this week. For the Fed, the key question is whether the AI-led sell-off materially tightened financial conditions. We doubt it changes the policy path."

"A hawkish October hold should keep a December hike in play, particularly with energy prices adding to upside inflation risks."

"USD support remains intact, but US-centric risk-off is becoming less reliably USD-positive. That makes the JPY increasingly attractive as the cleaner hedge."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)