18 November 2024
Special warning
HSBC prepared this video based on the information that it believes to be reliable at the time of shooting. However, the FX market moves very quickly and the views presented in the video may no longer be up-to-date and are subject to change without notice. The content of the video does not constitute a solicitation nor recommendation for any transaction or making any deposit or investment. Please contact your Relationship Manager for our most updated FX views and publications.
The JPY has weakened c8% against the USD quarter-to-date because of the market’s hawkish reassessment of the Federal Reserve’s (Fed) policy rate trajectory, on the back of positive US data surprises and potential policies that the new Trump administration may implement. The futures market pricing of a year-end 2025 Fed rate is now at c3.8%, c80bp higher than its end-September pricing of c3% (Bloomberg, 14 November 2024).
Admittedly, there is limited information at this juncture on the incoming US administration’s policy priorities and timeframes. But amid high uncertainty, the USD should have an upper hand over the JPY, given the former’s much higher yields and more robust growth. Japan’s basic balance (a combination of current account balance, net foreign direct investment and net portfolio flows) is still in deficit, weighing on the JPY ordinarily.
Source: Commodity Futures Trading Commission, Bloomberg, HSBC
Source: Bloomberg, HSBC
Additionally, the JPY faces headwinds from the possibility of the return of JPYfunded carry trades (i.e., selling the JPY to fund the purchase of higher-yielding currencies or assets), as speculative market has started turning short JPY again since late October and the current positioning is still far from extreme levels seen in 2Q (Chart 1). It is also worth monitoring that USD-JPY seems to have already risen faster than its yield differential recently (Chart 2). But if we do get to that point of divergence from fundamentals, we think a significant overshooting of USD-JPY will be met with FX intervention again, and potentially, a rate hike by the Bank of Japan (BoJ) too – similar to what happened in July.
All things considered, we now see USD-JPY rising further over the coming quarters, before stalling at around the multi-decade highs (last reached in the beginning of July).
Important disclosures
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Information in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on it, consider the appropriateness of the information, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products.
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
Additional disclosures
1. This report is dated as at 15 November 2024.
2. All market data included in this report are dated as at close 14 November 2024, unless a different date and/or a specific time of day is indicated in the report.
3. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
4. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.
This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice.
This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You SHOULD NOT use or rely on this document in making any investment decision or decision to buy or sell currency. HBAP is not responsible for such use or reliance by you. You SHOULD consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document.
You SHOULD NOT reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to the US, Canada or Australia or any other jurisdiction where its distribution is unlawful.
Jersey, Guernsey and Isle of Man
In Jersey, Guernsey and the Isle of Man, this document is distributed to its customers for general reference only by HSBC Bank plc Jersey branch, HSBC Bank plc Guernsey branch and HSBC Bank plc in the Isle of Man.
Mainland China
In mainland China, this document is distributed by HSBC Bank (China) Company Limited (“HBCN”) to its customers for general reference only. This document is not, and is not intended to be, for the purpose of providing securities and futures investment advisory services or financial information services, or promoting or selling any wealth management product. This document provides all content and information solely on an "as-is/as-available" basis. You SHOULD consult your own professional adviser if you have any questions regarding this document.
Hong Kong
In Hong Kong, this document is distributed by HBAP to its customers for general reference only. HBAP is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. HBAP gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document.
India
In India, this document is distributed for general reference by The Hongkong and Shanghai Banking Corporation Limited, India (HSBC India), having its India corporate office at 52/60, Mahatma Gandhi Road, Fort, Mumbai 400 001. HSBC India is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document. HSBC India gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document and clients should contact their relationship manager in respect of any clarifications arising from or in connection with this document.
Malaysia
In Malaysia, this document has been prepared by HBAP is issued and distributed by HSBC Bank Malaysia Berhad (127776-V) / HSBC Amanah Malaysia Berhad (807705-X) (the "Bank"). The Bank is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result, of arising from or relating to your use of or reliance on this document.
Singapore
In Singapore, this document is distributed by HSBC Bank (Singapore) Limited (“HBSP”) pursuant to Regulation 32C of the Financial Advisers Regulations, to its customers for general reference only. HBSP accepts legal responsibility for the contents of this document, and may be contacted in respect of any matters arising from, or in connection with, this document. Please refer to HBSP’s website at www.hsbc.com.sg for its contact details.
Taiwan
In Taiwan, this document is distributed by HSBC Bank (Taiwan) Limited, [13F/14F No 333, section 1 Keelong Rd, Taipei] to its customers for general reference only. HSBC Bank (Taiwan) Limited is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. Clients of HSBC Bank (Taiwan) Limited should contact their relationship manager in respect of any matters arising from or in connection with this document.
United Arab Emirates
In the UAE, this document is distributed by HSBC Bank Middle East Limited (“HBME”) U.A.E Branch, P.O.Box 66, Dubai, U.A.E, which is regulated by the Central Bank of the U.A.E and lead regulated by the Dubai Financial Services Authority. In respect of certain financial services and activities offered by HBME, it is regulated by the Securities and Commodities Authority in the UAE under license number 602004. HBME is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document.
Miscellaneous
Notwithstanding this document is not investment advice, please be aware of the following for the sake of completeness. Past performance is not an indication of future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. When an investment is denominated in a currency other than the local currency of an investor, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. Where there is no recognised market for an investment, it may be difficult for an investor to sell the investment or to obtain reliable information about its value or the extent of the risk associated with it.
This document contains forward-looking statements which are, by their nature, subject to significant risks and uncertainties. Such statements are projections, do not represent any one investment and are used for illustration purpose only. Customers are reminded that there can be no assurance that economic conditions described herein will remain in the future. Actual results may differ materially from the forecasts/estimates. No assurance is given that those expectations reflected in those forward-looking statements will prove to have been correct or come to fruition, and you are cautioned not to place undue reliance on such statements. No obligation is undertaken to publicly update or revise any forward-looking statements contained in this document or any other related document whether as a result of new information, future events or otherwise.
The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates and their respective officers and/or employees, may have interests in any products referred to in this document by acting in various roles including as distributor, holder of principal positions, adviser or lender. The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and employees, may receive fees, brokerage or commissions for acting in those capacities. In addition, The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and/or employees, may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in this document.
© Copyright 2024. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED. No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.
