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Weekly FX Focus - SGDJPY: Time For A Reversal?

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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

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This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein has not taken account of the objectives, financial situation or needs of any particular investor. Any person considering an investment should consider the suitability of the investment having regard to their objectives, financial situation and needs, and should seek independent advice before making an investment decision. You should obtain and consider the relevant product terms and conditions and risk disclosure statement, and consider if it’s suitable for your objectives, financial situation or needs before making any investment decision. Investors are advised to obtain independent legal, financial and taxation advice prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong and are subject to investment risk including the possible loss of the principal amount invested.

This communication does not constitute the distribution of any information in any jurisdiction in which it is unlawful to distribute such information to any person in such jurisdiction.

CHKL does not provide discretionary portfolio management services.

Singapore: This communication is distributed in Singapore by Citibank Singapore Limited (“CSL”) to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this communication. Please contact your Citigold/Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this communication. Investment products are not insured under the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.

This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors, as appropriate. This communication does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom it is unlawful to distribute such information or make any offer or solicitation.

Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Interested investors should seek the advice of their financial adviser about the issues discussed herein as appropriate. Should investors choose not to seek such advice, they should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives and assess whether the investment product is suitable for themselves. Although information in this document has been obtained from sources believed to be reliable, CSL does not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

CSL does not provide discretionary portfolio management services

UAE: This document is distributed in UAE by Citibank, N.A. UAE. Citibank N.A. UAE is licensed by UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity as Promoter under license number 602003.

Citibank N.A. UAE is registered with Central Bank of UAE under license numbers BSD/504/83 for Al Wasl Branch Dubai, 13/184/2019 for Mall of the Emirates Branch Dubai, BSD/2819/9 for Sharjah Branch, and BSD/692/83 for Abu Dhabi Branch.

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United Kingdom: This document is distributed in the U.K. by Citibank UK Limited and in Jersey by Citibank N.A., Jersey Branch.

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