The report from BNY outlines the rebalancing needs for the Japanese Yen (JPY) following a significant selloff in Japanese government bonds (JGBs). It indicates that while there is a strong need for JPY purchases, market sentiment may remain cautious until after the upcoming election. The analysis suggests that JPY flows will improve once fiscal policy under the next Diet is assessed.

Market sentiment cautious ahead of elections

"The biggest rebalancing signal across all asset classes is in the JPY, where significant purchases are needed after a record selloff in Japanese government bonds (JGBs)."

"Despite the need for more JPY purchases, we doubt markets will take a strong view until after the election."

"Our data indicate that cross-border JGB flow is still firm, suggesting that foreign investors may be finding value in current JGB yields, while relying on the FX authorities of Japan and the U.S. to limit future currency losses."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)