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JPY: Risk of appreciation? - Commerzbank

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JPY: Risk of appreciation? - Commerzbank

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New update 2025.10.08 19:21
JPY: Risk of appreciation? - Commerzbank

update 2025.10.08 19:21

Data from this morning shows a renewed slowdown in wage growth in Japan. Although nominal wages are still up 1.5% year-on-year, this is well below expectations and the previous trend. Adjusted for inflation, i.e., in real terms, wages have fallen again, and more sharply than before. This continues the trend of recent years, with wages rising faster in nominal terms than before the pandemic, but inflation meaning that people have less purchasing power than before, Commerzbank's FX analyst Volkmar Baur notes.

JPY is likely to appreciate in the coming weeks and months

"In response, the Japanese Yen (JPY) is once again on the defensive this morning, losing further ground against the USD. However, the main reason for this is likely not the wage data, but rather the internal elections of the ruling LDP party, which selected a new chairperson over the weekend. With Sanae Takaichi, a woman has taken over the chairmanship of the party for the first time in history and is thus expected to become Japan's first female prime minister on October 15."

"The current situation is very different from the one Shinzo Abe found in 2012. Takaichi will have to work with a minority government, at least initially, which means she will not be able to implement her views easily or without the support of other parties. Compromises will therefore be necessary. In addition, much of the dissatisfaction among the population is due to the problem of high inflation and the associated real wage loss. However, an expansionary fiscal policy is likely to fuel inflation again, so caution is also called for here."

"The solution to the problem of excessive inflation and the associated loss of purchasing power would be exactly the opposite: an appreciation of the yen. This would lower import prices, which would have a direct impact on food and energy in particular. I therefore do not believe that the JPY will remain weak for much longer. On the contrary, there is a real risk that the JPY could appreciate somewhat in the coming weeks and months as a result of political decisions. However, in order to assess this more accurately, we will have to wait and see what happens in the coming weeks and how the new government is formed."


Date

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 : 2025.10.08

Update

Last updated

 : 2025.10.08

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