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Credit Agricole’s latest analysis highlights the complex dynamics affecting the Japanese yen noting that a sustained recovery in JPY value hinges on shifts in global risk sentiment and potential action from the Bank of Japan.

Key Points:

  1. JPY’s Brief Respite: The JPY experienced a temporary pause in its downward trajectory earlier this week, influenced by mixed US inflation data and European economic indicators.

  2. Japan’s Q3 GDP Impact: Japan’s larger-than-expected GDP contraction in Q3 quickly reversed the JPY’s fortunes, reinforcing the dovish stance of the BoJ and triggering renewed selling pressures on the currency.

  3. Carry Trades and JPY Weakness: The current market scenario suggests an increased reliance on JPY-funded carry trades, where investors borrow in JPY (due to its low-interest rates) to invest in higher-yielding assets. This practice has contributed to the JPY’s weakness.

  4. Risk-Off Trading as a Catalyst: A shift towards risk-off trading could lead to the unwinding of these carry trades, potentially bolstering the JPY.

  5. BoJ’s Role in JPY Rebound: Direct intervention by the BoJ could be a significant factor in reversing the JPY’s downtrend. However, the timing and nature of such intervention remain uncertain.


The JPY’s path to a sustained recovery is complex, intertwined with global risk perceptions and the strategies of investors engaging in carry trades. While recent economic data have not favored the JPY, shifts in market sentiment or decisive action from the BoJ could alter its course. Investors and market watchers should remain vigilant for signs of change in these key areas to gauge the future trajectory of the Japanese yen.

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