So far this month, the USD is the best performing G10 currency by a clear margin. The JPY had a roller coaster of a summer, and shock waves are continuing to be felt. The rapid unwinding of the JPY funded carry trade followed the surprise decision by the BoJ to raise rates at its July policy meeting, Rabobank’s FX analyst Jane Foley notes.

Strong USD cad keep the JPY on the back foot near term

“In our view the broad direction of USD/JPY over the medium-term is likely to be lower. Behind the slow normalisation of the BoJ’s policy settings is an economy that is slowly shrugging off the mindset associated with decades of disinflation and deflationary pressures.”

“Optimism is already building that next spring will bring another set of strong wage deals for unionised workers which will help support consumption and the profitability of domestic firms. Changes in governance at the stock exchange and the government’s effort to promote investment are another part of the changing fundamental landscape in Japan, as are the government’s effort to establish the country’s position as a collaborator with the US in areas such as tech.