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Weekly FX Focus - SGDJPY: Time For A Reversal?

Forecast Spot 0 - 3m 6 - 12m Long-term
SGDJPY 107.80 110.45 (105.25) 98.50 (99.25) 100.00 (100.00)

*Forecasts as of August 2023. Figures denoted in brackets are the previous forecasts.


  • Like many Yen crosses, SGDJPY is currently at highs never seen before. Gains in the pair have largely been a result of the Bank of Japan (BoJ) maintaining an ultra-loose monetary policy stance via its yield curve control (YCC) policy to cap longer dated Japanese government bond (JGB) yields and keeping its cash rate unchanged at -0.1% since 2016 while the MAS has tightened Singapore’s financial conditions 5 times since October 2021 to curb inflation pressures. This cumulated in the SGD nominal effective exchange rate (NEER) 12-month slope by a total 1.5% pa together with a 5% upward re-centering of the NEER band.


  • SGD’s outperformance also stems from its “safe haven” characteristic within the Asian EM region at a time when China’s recovery has faltered. With Singapore’s massive current account surplus (> +18% of GDP) and FX reserves currently > USD300bn, Singapore’s robust external position has contributed to SGD’s resilience during times of USD strength while other currencies have suffered. Japan’s external position on the other hand, deteriorated during COVID and from the terms of trade shock due to soaring energy prices resulting from the Russia – Ukraine war. As an energy importer, Japan saw one of its steepest terms of trade decline in October 2022 which sent Yen to its weakest level in decades against most major currencies.


  • But the tide now seems to be turning, albeit slowly. Japan has well and truly recovered from its terms of trade shock of last year as energy prices have largely normalized. Instead, the issue that Japan faces now is one of inflation pressures emanating from higher wages and a weak Yen becoming more entrenched into longer term expectations. As a result, the BoJ seems to be having a change of heart on its monetary policy outlook with Governor Kazuo Ueda over the weekend signaling the likelihood of a self-sustaining virtuous circle of wage and price rises in Japan possibly requiring a more decisive tightening in Japan’s financial conditions as early as year end via an early termination of YCC and exit from negative rates. Meanwhile, Singapore’s MAS is now expected to be on hold possibly until the end of 2025, barring a further significant rise in Singapore’s inflation pressures and SGD may also be less appealing as a regional “safe haven” given China’s cyclical bottom and the recent flurry of policy stimulus that could be the trigger for a more sustained (albeit gradual) recovery. This could potentially spell the end of Yen weakness across the board, including against SGD.


SGDJPY – Currently at highs never seen before 

Source: Bloomberg, September 11, 2023