Japanese Yen: Hedge appeal strengthens against US Dollar - OCBC

OCBC’s Sim Moh Siong and Christopher Wong highlight that the Japanese Yen (JPY) is regaining relevance as a portfolio hedge amid shifting AI-related market risks. While AI concerns have eased, US-centric risk-off is seen as less reliably Dollar-supportive, making the JPY increasingly attractive as a hedge. They expect the Fed, BoJ and ECB to hold rates, while a hawkish Fed hold could keep a December hike in play.

Yen regains portfolio hedge status

"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."