As the Japanese Yen (JPY) started the month of July at its weakest levels in over 30 years, many investors were caught off guard. However, the island-nation currency has since surged more than 9%, settling below 148 per USD. According to NBC FX analysts Stéfane Marion and Kyle Dahms, this recent strength in the JPY may continue.
Factors Driving JPY Strength
The surge in JPY strength can be attributed to two main factors. Firstly, the unwinding of carry trades led to an initial surge in the currency. This was then compounded by a surprise decision from the Bank of Japan to raise rates to their highest level in 15 years. Additionally, the central bank indicated a shift towards slowing asset purchases, signaling a departure from their previous easy money policy.
Looking ahead, Marion and Dahms predict that the contrast in monetary policy between Japan and the rest of the world will become more apparent, especially if the Federal Reserve (Fed) starts easing in September. This could further support the strength of the JPY.
Investment Outlook
Based on the events of July, Marion and Dahms believe that the JPY is poised for further appreciation. While they see potential for JPY strength later this year, they caution that a significant amount of ground has already been covered in a short period of time.
Analysis
For investors, the recent surge in the Japanese Yen against the US Dollar presents both opportunities and risks. Those looking to diversify their portfolios may consider allocating some funds to JPY-denominated assets. However, it’s important to be mindful of the potential for volatility in the currency markets.
Overall, the outlook for the JPY remains positive, but investors should proceed with caution and consult with a financial advisor before making any significant investment decisions.