Policy Intervention Is Unlikely to Alter the Main Theme of JPY Weakness; CNY, HUF and COP Still Offer Structural Opportunities

Overview

This report provides strategy analysis on major global currencies and emerging market currencies. Key topics include coordinated JPY intervention by Japan and the United States, Bank of Japan policy expectations, the impact of U.S. Treasury actions on the dollar’s reserve-currency status, adjustment of China’s external imbalances through CNY, HUF drivers from energy and domestic policy, Nordic currencies’ energy and rate differentials, AUD sensitivity to China’s growth composition, and the impact of Colombia’s reserve accumulation plan on COP.

Core views

The report believes that while JPY intervention carries strong signaling value, it has not yet changed the currency’s weak fundamentals; if the Bank of Japan does not raise rates in September, the fragile equilibrium created by intervention may be broken. U.S. participation is mainly intended to maintain the functioning of the U.S. Treasury market, rather than express a strong directional view on JPY, and the FIMA facility instead reflects the infrastructure advantage of the dollar as a reserve currency. CNY should appreciate gradually against a backdrop of a huge trade surplus and clear undervaluation, but this needs to be accompanied by expansionary domestic demand policies. HUF is constrained by energy prices in the short term, but should benefit over the medium term from EU funds, a lower inflation target and regional convergence. Nordic currencies generally have room to appreciate, with NOK more attractive than SEK. AUD’s sensitivity to China is mainly transmitted through the commodities channel; China growth driven by real estate and investment is more favorable for AUD than consumption-led growth. COP’s reserve accumulation plan will reduce the pace of appreciation and volatility, but high real rates, carry and improving domestic fundamentals still support its total return.

Analysis framework

The report combines policy event analysis, central bank reaction functions, global factor regressions, energy terms of trade, rate differentials and carry, equilibrium exchange-rate valuation, cross-country input-output relationships, and horizon forecasts to cross-validate short-term catalysts and medium-term fundamentals for each currency.

Methodology notes

• Policy analysisCentral bank reaction function and intervention transmission

  Assess whether FX intervention can be reinforced by subsequent monetary policy

  The report links the effectiveness of Japan’s intervention to the Bank of Japan’s September policy decision, the global growth environment and domestic portfolio reallocation, arguing that without rate hikes or changes in external conditions, the intervention’s impact may gradually fade.

• Quantitative attributionGlobal factor model

  Decompose global factors and country-specific factors in exchange-rate performance

  The report uses variables such as energy prices, the euro and equity markets to explain EUR/HUF movements, and notes that HUF’s residual outperformance after the election window once reached 9 percentage points and is currently about 6 percentage points.

• Valuation analysisEquilibrium exchange rate and purchasing power parity valuation

  Compare spot exchange rates with long-term equilibrium values

  The report uses valuation indicators such as GSDEER, GSFEER and purchasing power parity to assess currency misalignment, and combines spot and carry to form 12-month total-return forecasts.

• Macro transmissionGrowth composition and input-output spillover analysis

  Identify the impact of different sources of Chinese growth on Australia and AUD

  Historical experience shows that China’s real estate- and investment-driven growth generates larger spillovers to Australia through stronger commodity demand, while consumption-driven growth has weaker transmission.

• Trading strategyCarry and risk hedging

  Reduce common risk exposure while retaining currency convergence gains

  The report recommends using PLN as the funding currency for long HUF positions to reduce energy price risk, and controlling trade risk through target and stop-loss levels.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• JPY

  Direct target of coordinated intervention by Japan and the United States

  Strengths

  If the Bank of Japan raises rates in September and domestic investors begin reallocating back into Japanese assets, JPY may remain strong for longer.

  Weaknesses

  Fundamental depreciation drivers remain, the market response after intervention has been relatively weak, and exchange-rate stability itself may reduce the urgency for the Bank of Japan to raise rates quickly.

  Comparison

  Compared with intervention alone, changes in monetary policy and a turn in the global growth environment are more decisive for the JPY trend.

  Risks

  Bank of Japan policy surprises, U.S. Treasury market volatility, changes in global growth and Japanese investors’ asset reallocation.

• USD

  The U.S. Treasury participates in JPY intervention and provides dollar liquidity infrastructure

  Strengths

  The FIMA facility, network effects and market infrastructure continue to reinforce USD’s advantage as the global reserve currency.

  Weaknesses

  Unconventional policy actions and an unsustainable policy mix may weaken long-term market confidence in institutional reliability.

  Comparison

  At present, no other currency comes close to USD in terms of practicality, network effects and support systems.

  Risks

  Policy uncertainty, fiscal and monetary policy imbalances, and the perception that the issuer of U.S. Treasuries is intervening excessively in the market.

• CNY

  Main vehicle for China’s trade surplus, exchange-rate undervaluation and internal-external rebalancing

  Strengths

  The trade surplus is strong and valuation is clearly low; gradual appreciation would help reduce protectionist pressure from trading partners.

  Weaknesses

  Domestic demand deteriorated quarter-on-quarter in the second quarter, and exchange-rate appreciation alone cannot resolve all internal and external imbalances.

  Comparison

  Compared with maintaining a weak exchange rate, appreciation combined with expansionary domestic demand policies is more favorable for China’s medium-term growth balance.

  Risks

  Weak real estate and infrastructure, escalation of external protectionism, insufficient policy stimulus and global dollar volatility.

• HUF

  Driven jointly by energy terms of trade, EU funds and domestic policy

  Strengths

  The post-election repricing of domestic fundamentals is broadly reasonable, while EU fund inflows, a lower inflation target and a euro adoption plan provide medium-term support.

  Weaknesses

  The energy balance has deteriorated, and good short-term performance requires continued declines in oil and gas prices.

  Comparison

  Funding long HUF with PLN can partially reduce common regional energy risk while retaining HUF convergence potential.

  Risks

  Rising energy prices, electricity supply disruptions, a weaker-than-expected budget plan and delays in EU funds.

• NOK and SEK

  Nordic cyclical currencies affected by energy, European growth and monetary policy differences

  Strengths

  Both currencies have long-term valuation buffers; NOK also benefits from energy terms of trade, carry and potential Norges Bank rate hikes.

  Weaknesses

  SEK is more sensitive to energy prices, U.S. long-term rates and downgrades to European growth; NOK is highly correlated with oil and gas prices.

  Comparison

  The report is bullish on NOK/SEK and believes using EUR rather than SEK as the funding currency offers more value.

  Risks

  Reversal in energy prices, European growth slowdown, Swedish budget uncertainty and Nordic central bank policies deviating from expectations.

• AUD

  Provides selective exposure to China’s growth composition through the commodities channel

  Strengths

  Improved risk appetite, higher energy prices and Chinese high-tech and manufacturing investment may provide support through copper demand.

  Weaknesses

  Weak Chinese real estate, infrastructure and domestic demand limit the short-term positive impulse, and Australia’s domestic economy is also relatively soft.

  Comparison

  Chinese investment- and real estate-driven growth supports AUD significantly more than consumption-driven growth; if energy prices are moderate, AUD/NZD may decline.

  Risks

  China stimulus policies weaker than expected, falling copper prices, cooling Australian inflation and the Reserve Bank of Australia remaining on hold.

• COP

  Affected by central bank reserve accumulation, real interest rates, carry and fiscal policy

  Strengths

  Real rates and FX carry remain among the highest in emerging markets, and improving domestic fundamentals can continue to support total returns.

  Weaknesses

  The reserve accumulation plan will slow the pace of spot appreciation, and the central bank’s extended pause in rate hikes will also limit further widening of rate differentials.

  Comparison

  The reserve plan is more like a constraint on the pace of appreciation, rather than a change in the direction of COP appreciation.

  Risks

  Fiscal consolidation plans falling short of expectations, an expansion in reserve purchases, declining global risk appetite and changes in domestic policy.

Key data

• Scale of Japan’s FX interventionUp to about USD 85 billion over two daysPotentially the largest two-day intervention since 2011, and coordinated with the United States.
• Market-implied probability of a Bank of Japan rate hike in SeptemberMore than 60%If pricing remains and the Bank of Japan does not raise rates, JPY and Japanese government bonds may come under renewed pressure.
• China’s July goods trade surplusUSD 112.5 billionBelow June’s USD 125.6 billion, but still at a strong level.
• CNY valuationUndervalued by at least about 20%The huge trade surplus and undervaluation together support medium-term gradual appreciation.
• Six-month EUR/HUF target350Spot is about 365 as shown in the current report table, reflecting the view of medium-term HUF appreciation.
• Hungary net energy balance forecastDeficit of 4% of GDPA clear deterioration compared with the 2.2% deficit at end-2025, creating short-term pressure on HUF.
• PLN/HUF tradeTarget 80.5, stop loss 87Recommends short PLN/HUF to retain HUF regional convergence exposure while partially neutralizing energy risk.
• Colombia reserve accumulation planUp to USD 4 billionImplemented through an options mechanism triggered when USD/COP is below its 20-trading-day moving average.
• COP year-to-date performanceAppreciated more than 16%It has appreciated about 7% since the end of May, one of the factors behind the central bank’s decision to pause rate hikes.
• USD/JPY forecast162 in 3 months, 163 in 6 months, 165 in 12 monthsSpot is about 158, and the forecast path reflects the baseline view of renewed JPY depreciation.
• USD/CNY forecast6.80 in 3 months, 6.70 in 6 months, 6.50 in 12 monthsThe medium-term path generally reflects gradual CNY appreciation.
• AUD/USD forecast0.72 in 3 months, 0.73 in 6 months, 0.74 in 12 monthsSpot is about 0.70, with the risk environment and commodities channel providing medium-term support.

Impact & implications

The strategic implication is to avoid equating one-off intervention with a reversal of the JPY trend, and to focus on whether the Bank of Japan reinforces the policy signal with a rate hike. The dollar’s reserve status has not been materially weakened in the short term by U.S. assistance in Japan’s handling of U.S. Treasuries, but the United States’ policy mix, which resembles Japan’s in being unsustainable, remains a long-term risk. In cross-currency allocation, investors may focus on gradual CNY appreciation, HUF convergence opportunities relative to PLN, NOK’s carry and energy advantage relative to SEK, and COP’s high-carry total return; AUD is better assessed based on Chinese investment and commodity demand rather than a broad China growth theme.

Risks

• The Bank of Japan not raising rates in September could put JPY and Japanese government bonds under renewed pressure, while a surprise rate hike would quickly change the baseline view.
• Unconventional market operations by the U.S. Treasury may amplify concerns about institutional reliability and the dollar’s long-term status.
• Sustained increases in energy prices would weigh on both HUF and SEK and increase pressure on Europe’s terms of trade.
• Persistent weakness in China’s real estate, infrastructure and domestic demand could limit CNY rebalancing and the commodity-demand support for AUD.
• Delayed EU fund inflows or weak Hungarian budget policy could undermine HUF’s medium-term performance.
• Colombia’s fiscal consolidation plan or further central bank intervention could reduce COP’s total return.
• Some forecast tables in the report have extraction misalignments, and individual non-core currency data should be checked against the original dynamic tables.

What to watch

• The Bank of Japan’s September meeting and whether market-implied rate hike probability remains above 60%.
• Whether Japanese domestic investors begin reallocating funds back into domestic assets.
• U.S. arrangements to expand the FIMA facility and the functioning of the long end of the U.S. Treasury market.
• The degree of coordination between the CNY fixing, the trade-weighted exchange rate and China’s expansionary domestic demand policies.
• Oil and gas prices, Hungary’s energy balance and actual EU fund disbursements in the fourth quarter.
• Fourth-quarter announcements on Hungary’s inflation target, budget plan and euro adoption plan.
• Policy pricing differences between Norges Bank and the Riksbank and Nordic energy terms of trade.
• The transmission from Chinese real estate, infrastructure, high-tech investment and copper prices to AUD.
• The execution speed of Colombia’s reserve purchases and the new government’s fiscal consolidation plan.