JPM Daily Credit Strategy Update

Research evidence excerpt

JPM Daily Credit Strategy Update

J.P. Morgan Securities LLC North America Credit Research

Nathaniel Rosenbaum, CFA AC 04 August 2026 J P M O R G A N

(1-212) 834-2370

nathaniel.rosenbaum@jpmorgan.com

The reported JPY FX intervention shouldn’t disrupt Japanese demand for USD HG; Foreign

demand monitor shows FAB at 1+ year high post-Fed

The recently reported US-Japan cooperation on JPY-buying FX intervention is not likely to mechanically weaken demand for

USD IG from Japanese investors. Our Japan research team views the latest action as an effort to counteract excessive yen

weakness rather than engineer a sustained appreciation, and sees a repeat of the August 2024 JPY carry-trade unwind as unlikely

given the absence of the same combination of a surprise BoJ hike, rapidly rising Fed-cut expectations and US recession concerns

that were prevailing at the time (more details here and here).

Japanese investors typically hedge their FX exposure using either 3-month FX forwards or cross-currency basis swaps, with the

shorter-term hedge typically the more liquid and widely used approach. The incentive to own hedged USD IG therefore depends

more on US corporate yields, FX hedging costs and domestic alternatives than on USD/JPY spot alone. 3m hedging costs have

declined 15bp over the past three days since the first reports on this FX intervention emerged (spot FX down ~3.85% during this

time), which has in turn led the pickup for JPY investors at the 5y point to turn positive to +8bp for the first time since April 2025.

This is because the market is viewing this reported FX intervention as more likely to spur the BoJ into action, with market pricing

of a September rate hike moving up from 27% to 47% over the past week and a BoJ rate hike would lead to compression versus