Japanese investors pivoting out of U.S. assets as yen yields rise — combined with implicit pressure from Washington over the exchange rate during trade talks — could push the currency about 6% higher against the dollar in the coming months, according to Nomura Holdings.
The investment bank, among Japan’s largest, now recommends shorting the greenback versus the yen, targeting a move in the pair to ¥136 by the end of September, from around ¥145 currently. Nomura’s Yusuke Miyairi, Yujiro Goto and Dominic Bunning expect that the Bank of Japan’s steady pace of rate hikes, will "encourage domestic investors to increase more domestic bond than overseas bond exposure,” they wrote in a Friday report to clients.
The team also flagged the possibility that U.S. concerns over the dollar-yen exchange rate will "intensify” should the Japanese currency weaken, especially amid sensitive bilateral trade negotiations. While the analysts don’t anticipate any symbolic foreign-exchange deal between the U.S. and Japan, "the market continues to expect there exists a ‘tacit’ agreement for a weaker” dollar.
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