JPMorgan Chase and UBS Group AG lowered their target prices for Japanese stocks, will the yen rise further?

Despite the recent rebound in the market, JPMorgan Chase and UBS do not believe that the Japanese stock market has emerged from the gloom. These two institutions have successively lowered the year-end target prices for Japan's main stock indices, as they believe that the unwinding of the yen carry trade has not yet ended.

On August 9, strategists at JPMorgan Chase, including Rie Nishihara, wrote in their latest report that due to the strengthening yen and the risk of a U.S. economic recession, they have lowered the year-end 2024 target prices for Japanese stock indices. Specifically, they have lowered the target for the TOPIX index from 2,950 points to 2,700-2,800 points, and the target for the Nikkei 225 index from 42,000 points to 39,000-40,000 points.

JPMorgan Chase has also lowered its earnings growth expectations for the Japanese stock market from around 8% to around 4%. Analyst Nishihara predicts that the market will continue to experience high volatility in the near term, evaluating the level of the Japanese market while monitoring the risks of a U.S. economic recession and the sentiment in the U.S. market.

In recent days, UBS Japan's stock strategist also lowered the year-end target price for Japanese stocks, reducing the Nikkei 225 index from 42,000 points to 39,000 points. Analyst James Malcolm believes that the unwinding of the yen carry trade is not yet over, and short-term related trades may consolidate in the summer before the yen rises again.

UBS recommends buying the yen, expecting that as speculative positions on the yen continue to be reduced in the market, the yen will appreciate by over 10% against the U.S. dollar by the end of next year.

BNY Mellon is more optimistic about the outlook for the yen, speculating that the yen could rise to 100 against the U.S. dollar. Analyst Bob Savage believes that carry trades using the yen as a funding currency will further unwind, as the current level of 1 U.S. dollar to 147 yen is still too cheap, and over time, the yen exchange rate should move closer to 100.

The yen exchange rate is currently slightly rising, around the 147 level. During the recent global stock market crash, the yen briefly surged to 142, and in July this year, the yen briefly fell to 161.

Recently, the reversal of yen carry trades has led to a collapse in the Japanese stock market and has become the catalyst for a sharp rise in the yen. Institutions have differing opinions on when the unwinding of the yen carry trade will end. UBS, JPMorgan Chase, and Nomura believe that the unwinding process of the yen carry trade is only about 50% complete, and the yen remains one of the most undervalued currencies. Goldman Sachs and Natixis, on the other hand, believe that the unwinding of the yen carry trade is nearing its "endgame," with most of the yen short positions already closed.

Today, the Nikkei 225 index and TOPIX index continue to rebound slightly, but compared to the historical highs of last month, these indices are still down by about 17%.