The BUY case for Yen is straightforward. As millions of tourists will happily tell you Japan is cheap. Using the BIS real effective exchange rate measure, the Yen has collapse in value. This measure takes in relative inflation AND exchange rate - so makes the Yen even cheaper than just looking at straight exchange rates.
I have in previous post called “long Yen” the Widowmaker trade. It used to be short JGBs were the widowmaker trade, as various “macro thinkers” used to always think JGB yield should rise, and instead they always went lower. Even with recent moves, long Yen has been a widowmaker trade still. Anyone hyperventilating over a 6% move in the Yen needs to get out more.
The most recent Yen strength has probably been driven by the realisation that the BOJ will likely raise rates more than the US. This can be seen in the relative movement of 2 year bond yields. The question you do have to ask yourself, is why didn’t Yen rally more in 2024 and 2025, as these two yields began converging?
If you look at the Yen versus other “safe haven” currencies like the Swiss Franc, then it looks mega cheap, and this makes it a buy.
The US wants Yen to go up, interest rates differentials are converging, and it looks like its turning against the Swiss Franc - for most people this would be a buy signal. And yet… I have a problem.
