Buying the Yen Makes Sense says Strategists

 

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The Japanese Yen is the standout performer of 2025, with fresh gains following encouraging wage data.

"The yen has strengthened today," says Dr. Win Thin, Global Head of Markets Strategy at Brown Brothers Harriman. "Japan December cash earnings data ran hot."

Japanese nominal earnings read at 4.8% y/y, easily outstripping the 3.7% expected by the market, as it accelerated away from the 3.9% figure of November.

In fact, this was the highest increase in wages since 1997.

The Dollar-Yen exchange rate dropped to its lowest level in three weeks at 152.84 USDJPY, "A close below the 152.70 area may result in an acceleration of the downside trend," says Jane Foley, Senior Currency Strategist at Rabobank.

The Pound-Yen exchange rate holds near one-week lows at 191.55.

When screened across a one-day, one-week and one-month timeframe, the Yen is the best-performing G10 currency.


Above: JPY performance in 2025.




Real earnings - which adjust for inflation - rose to 0.6% from 0.5% and beat expectations for -0.1%. Full-time pay rose to 2.8%.

These data are consistent with the Bank of Japan achieving its 2.0% inflation target and offering it hope that Japan is exiting decades of deflation.

That being said, the next rate hike from the Bank of Japan is only priced in for September, with a peak policy rate set for 1.00% over a two year horizon, implying there is ample scope for expectations to adjust higher.

"The market consensus that the BoJ will hike interest rates again this year at an extremely modest pace is being tested," says Foley.


Image courtesy of Brown Brothers Harriman.


With other central banks cutting interest rates, the Bank of Japan offers its currency a stark differentiating factor in that it is the only hiker in the pack. All the while, the Yen holds its safe-haven characteristics amidst a ratcheting up in global trade tensions under U.S. President Donald Trump.

"The data comes just after the BoJ hiked rates in January so it will have limited impact on near-term rate expectations. But the data still argues that the BoJ could certainly hike on two more occasions this year, which is certainly not priced," says Derek Halpenny, MUFG Bank's head of research for global markets EMEA.

MUFG thinks dynamics are changing in the JPY market and narrowing spreads can continue, encouraging increased JPY-buying hedging and discouraging speculative yen selling.

"Selling USD/JPY on rallies increasingly makes sense," says Halpenny.

"We continue to favour selling USD/JPY into rallies," says Rabobank's Foley.

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