JPMorgan Chase maintained its negative outlook on the Japanese yen in the medium and long term, amid rising energy prices resulting from geopolitical tensions in the Middle East, and the resulting pressures on the Japanese economy.
The bank confirmed that it is maintaining its target for the dollar-yen exchange rate at 164 by the end of the year, noting that continued high energy prices are exacerbating pressures on the Japanese currency from several angles.
This trend comes at a time when the Japanese economy is under increasing pressure due to its heavy reliance on energy imports, especially with supply disruptions related to the risk of closure or restriction of shipping in the Strait of Hormuz, which has led to higher import costs and a widening trade deficit.
The report explained that rising energy prices not only affect the trade balance, but also increase domestic inflation, putting households and businesses under higher cost pressures and further weakening the Japanese currency in the markets.
The bank also noted that these developments are pushing some central banks globally towards tighter policies, while expectations of an interest rate hike by the Bank of Japan remain relatively limited, which deepens the monetary policy gap and increases pressure on the Japanese yen.
According to JPMorgan, the Bank of Japan faces a complex equation, as it seeks to keep inflation driven by wage growth, but rising energy costs could push inflation on the supply side, which is not usually favored by monetary policymakers.
The bank warns that this combination of inflationary pressures and weak expectations of monetary tightening is creating an unfavorable environment for the Japanese currency, and increases the likelihood of its continued weakness against the dollar in the coming period.
