The Japanese Yen (JPY) would be the other go-to currency in a geopolitical risk escalation, but Japanese markets are currently trading mostly on domestic news, ING’s FX strategist Francesco Pesole notes.

Short-term JPY swap rates are inching lower

“The Nikkei has rebounded after yesterday’s selloff and short-term JPY swap rates are inching lower after the Bank of Japan (BoJ) summary of opinions was slightly hawkish, with one member explicitly signalling downside risks. This is partly offsetting bets that the new Prime Minister Sanae Takaichi will favour fighting inflation.”

“Ultimately, our view on the BoJ remains more hawkish than the market’s pricing for 13bp of tightening over the next three meetings, so even if the tactical picture is turning more skewed to the upside for USD/JPY – not least because of risks of correction higher in USD rates – we are not ready to call for a sustained, multi-month JPY underperformance.”