Citi sees yen strengthening risk if Japanese stocks correct further

Citi's latest research note reveals that the depreciation of the Japanese yen during the first half of the year was primarily due to the asset's historical gains and the increasing yen-sale hedging by investors. The intricate link between Japanese equities and the yen's value is not unique to Japan, as similar trends have been observed in other Asian markets, with South Korea serving as a prime example.

Despite not forecasting a bearish trend for Japanese equities in its base-case scenario, Citi does warn of a risk scenario where the yen could gain strength if equities experience further decline. Should U.S. and Japanese equities recover and the USDJPY reach approximately ¥160/$, the bank anticipates that the Japanese government may intervene by purchasing more yen. This article was assisted by AI technology and subsequently reviewed by a human editor.