Summary
The USD/JPY fluctuated wildly during the summer holidays amid reduced liquidity. It dropped below 142, the lowest level since the start of 2024, then rebounded to above 149 but stopped short of 150. Carry trades and other speculative yen buying activity appears to have faded, but the situation for real demand in Japan also seems to have reversed with the USD/JPY plummeting by over 20 yen in about a month. Exporters now appear to be waiting for the USD/JPY to rebound to higher levels. Meanwhile, a further decline would require the differential between rates in Japan and overseas to narrow. We see room for this since a reversal in the monetary policy gap looks likely to pick up in earnest going forward, but we expect any decline to proceed at a gradual pace.
