An ideal solution for clients holding bunch of JPY cash to convert back to USD!


Key Comments

• JPY weakness persists despite the BoJ exiting its negative interest rate policy at the March monetary policy meeting. In reaction, the BoJ has recently indicated that it is ready to show an outlook-based policy response if JPY depreciation boosts underlying inflation, but the effect is likely temporary. Fundamental risks around USDJPY remain skewed to the upside. Wide US-Japan yield differentials have been the key driver of the USDJPY rally and the appetite for Yen carry trades, which are here to stay for longer with a likely delay in the Fed's cutting cycle. Market continues to expect the BoJ to hike its policy rate to 25bp in July, which should provide some support for the JPY, but the timing and pace of the Fed's cutting cycle is likely a greater driver of bilateral rate differential. Other factors are exacerbating recent JPY weakness beyond what rates differentials imply. First, higher oil prices mean a renewed negative terms-of-trade shock for Japan. Second, JPY1trn per month of retail investment outflows from Japan due to New NISA tax exemption scheme and ever-widening digital trade deficits continue to offset some of the improvement in the current account surplus from inbound tourism, tilting FX supply-demand against the JPY.
• Some investors have accumulated some long JPY position and are currently suffering as USDJPY has been strongly appreciating since 2022. Given the low JPY rate environment, sitting on these JPY is unattractive. Such investors may look for a “recovery” solution where they could sell back JPY against USD at a better FX rate than today’s spot level.
• Solution → Hybrid Equity Ball Note
  Observe the performance of equity underlying to explore the potential of converting JPY to USD at an extremely appealing rate. Target range could be current ~30-40 points below USDJPY spot rate. Benefit from low USDJPY forward and rich volatility of equity underlyings!

[AI Translation]

• 尽管日本央行在 3 月份的货币政策会议上退出了负利率政策，但日元的疲软态势仍在持续。作为回应，日本央行最近表示，如果日元贬值推动了基本通胀，它准备采取基于前景的政策应对措施，但这种影响可能是暂时的。美元兑日元的基本面风险仍偏向上行。美日收益率的巨大差异是推动美元兑日元反弹和日元套息交易的主要因素，随着美联储削减周期的可能推迟，日元套息交易将持续更长时间。市场继续预计日本央行将在 7 月份将政策利率上调 25 个基点，这将为日元提供一些支撑，但美联储削减周期的时间和步伐可能是双边利率差的更大驱动因素。其他因素也加剧了日元近期的疲软态势，而不仅仅是利率差所带来的影响。首先，油价上涨意味着日本的贸易条件再次受到负面冲击。其次，由于新的 NISA 免税计划和不断扩大的数字贸易逆差，每月有 1 万亿日元的零售投资流出日本，这继续抵消了入境旅游带来的经常账户盈余的部分改善，使外汇供求关系对日元不利。
• 一些投资者积累了一些日元，由于美元兑日元自 2022 年以来一直在强劲升值，这些投资者目前正在遭受损失。在日元低利率的环境下，持有这些日元是没有吸引力的。这些投资者可能会寻求 "恢复 "解决方案，即以比目前即期水平更好的外汇汇率卖回日元兑美元。
• 解决方案 → Hybrid Equity Ball Note
  观察股票标的的表现，探索以极具吸引力的汇率将日元兑换成美元的潜力。目标范围可以是当前比美元兑日元即期汇率低 ~30-40 个点。受益于低美元兑日元远期汇率和股票标的的丰富波动性！

Product Solution

• Bullet structure with Equity American knock-in (AKI) observation; possible for physical redemption
• 3 scenarios at maturity:
  a) Favorable Scenario: If worst of equity underlying closes at or above coupon barrier (regardless of AKI event), investor receives: 100% JPY Notional / FX Bonus Strike (Paid in USD)
  b) Neutral Scenario: If worst of equity underlying closes below coupon barrier and AKI never occurred, investor receives: 100% JPY Notional
  c) Un-favorable Scenario: If worst of equity underlying closes below coupon barrier and AKI event occurred, physical delivery of underlying

Indicative Terms

USDJPY Ref: 156.43

*Indicative only, subject to the confirmed level on the trade date

Key Risks

• The product is not principal protected and is subject to market volatility and product issuer risk.
• In the case of physical delivery, the value of the Underlying received by investors may be lower than their initial investment amount. Investors may experience a total loss of capital in the worst-case scenario.

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