According to Bank of America Global Research, deeply entrenched bearish sentiment on the Japanese yen is being driven by views that the Bank of Japan is behind the curve on inflation and by ongoing structural selling pressures.
The U.S. dollar edged higher on Friday, while the euro and Japanese yen held steady, as foreign exchange traders adopted a cautious stance ahead of the pivotal U.S. jobs data and monitored rising geopolitical tensions.
A poll of 34 foreign exchange analysts indicates the Canadian dollar will remain stable against the U.S. dollar for the next three months before appreciating moderately over the coming year.
Bearish sentiment on the Japanese yen remains strong due to fiscal risks and monetary policy perceptions, though coordinated U.S.-Japan intervention could shift market dynamics, according to BofA Global Research.
The Japanese yen has extended its gains after Tokyo and Washington officially confirmed a rare joint intervention to support the currency, which recently fell to a 40-year low. The move has pushed the dollar-yen pair lower and shifted market focus to the key 155 level.
According to JPMorgan, the U.S. Treasury's Exchange Stabilization Fund has about $38 billion in liquid assets for currency intervention, an amount dwarfed by Japan's recent solo efforts to support the yen.
Bank of America reports that the systematic selling pressure on the South Korean won, caused by equity index rebalancing rules, has largely dissipated, removing a major headwind for the currency.
A combination of perceived policy shifts at the Federal Reserve and a rare U.S.-backed intervention to support the Japanese yen is prompting some global investors to reassess their holdings of U.S. debt and the dollar.
U.S. government bond yields climbed on Thursday as markets grappled with uncertainty over the Federal Reserve's September policy decision and monitored diplomatic developments impacting global energy prices.
