JPMorgan: Foreign investors in Japanese stocks may increase foreign exchange hedging, potentially intensifying the selling pressure on the yen.

J.P. Morgan said that foreign investors may increase their forex hedging ratio for buying Japanese stocks, leading to a selling of the yen. They mentioned that foreign investors have been buying Japanese stocks in large quantities over the past few quarters, but the forex hedging ratio has remained at a relatively low level of 10-20%. With the recent rise in Japanese stocks, if more traditional long-term investors return to hedged Japanese stock funds, this ratio may increase, becoming an overlooked catalyst for yen weakness. If the forex hedging ratio normalizes by increasing 1%, it could trigger about 3 trillion yen of USD/JPY buying pressure, or push USD/JPY up by 2.8.