Core Viewpoint - The Bank of Japan's recent interest rate hike has not provided a lasting boost to the yen, leading to increased skepticism about the currency's structural weaknesses and the outlook for its recovery [1]. Group 1: Yen Forecasts and Market Sentiment - Strategists from JPMorgan Chase & Co. and BNP Paribas SA predict the yen could weaken to 160 per dollar or lower by the end of 2026, influenced by significant US-Japan yield gaps, negative real interest rates, and ongoing capital outflows [2]. - The yen has gained less than 1% against the US dollar this year after four consecutive years of decline, with a brief rise past 140 per dollar in April before losing momentum due to uncertainties surrounding US tariff policies and political risks in Japan [3]. - Junya Tanase, chief Japan FX strategist at JPMorgan, holds a particularly bearish forecast for the yen, predicting it could reach 164 per dollar by the end of 2026, citing weak fundamentals and potential cyclical forces that may further depress the currency [4]. Group 2: Economic Indicators and Market Dynamics - Current market expectations indicate that the next Bank of Japan rate hike is not fully anticipated until September, while inflation remains above the central bank's 2% target, putting additional pressure on Japanese government bonds [5]. - The resurgence of carry trades, where investors borrow low-yielding yen to invest in higher-yielding currencies, is creating additional challenges for the yen's recovery, with leveraged funds showing significant bearish positions on the currency [6]. - Analysts suggest that global macro conditions in the coming year may support risk sentiment, which could benefit carry strategies and keep the dollar-yen exchange rate elevated, with expectations of the dollar-yen rising to 160 by the end of 2026 [7].

Core Insights - Sugar prices have shown mixed performance, with NY sugar reaching a 5-week high while London sugar declined slightly, influenced by the strength of the Brazilian real which discourages exports [1][2] Supply and Production - StoneX has revised Brazil's 2026/27 Center-South sugar production estimate down to 41.5 million metric tons (MMT) from 42.1 MMT, indicating potential supply constraints [2] - India's food ministry is considering increasing the price of ethanol for gasoline blending, which may lead to a shift in sugar production towards ethanol, thereby reducing sugar supplies [2] - The International Sugar Organization (ISO) forecasts a sugar surplus of 1.625 million metric tons for 2025-26, driven by increased production in India, Thailand, and Pakistan, contrasting with a previous deficit forecast [4] - Brazil's crop forecasting agency, Conab, has raised its 2025/26 sugar production estimate to 45 MMT, indicating robust output that may pressure prices [6] Market Dynamics - The outlook for global sugar supplies has negatively impacted prices since early October, with significant drops in both London and NY sugar prices due to anticipated surpluses [5] - Czarnikow has increased its global sugar surplus estimate for 2025/26 to 8.7 MMT, reflecting a growing concern over supply outpacing demand [5] - Brazil's Center-South sugar output in the second half of October rose by 16.4% year-on-year, with an increase in the percentage of sugarcane crushed for sugar, further contributing to the bearish outlook [6]

Group 1 - Sugar prices settled lower, with NY sugar reaching a 2.5-week low and London sugar hitting a four-year nearest-futures low [2][3] - Weakness in crude oil prices and the Brazilian Real are contributing factors to the decline in sugar prices, with WTI crude dropping over 4% to a 5-month low [2] - Brazil's sugar output is projected to increase, with a reported 15.7% year-on-year rise in sugar production in the first half of September [4] Group 2 - A global sugar surplus of 4.1 million metric tons is anticipated for the 2025/26 season, negatively impacting sugar prices [3] - India's monsoon rains are expected to lead to a bumper sugar crop, with a projected 19% year-on-year increase in sugar production for 2025/26 [5] - The cumulative monsoon rain in India as of September 30 was reported at 937.2 mm, 8% above normal, marking the strongest monsoon in five years [5]

Sugar Market Overview - Sugar prices are declining, with NY sugar reaching a 2.5-week low and London ICE white sugar also falling [2][1] - The decline in sugar prices is influenced by a drop in crude oil prices and a weaker Brazilian Real, which encourages Brazilian sugar exports [2][4] Supply Dynamics - Brazil's sugar output has increased, with a reported 15.7% year-on-year rise in the first half of September, leading to higher sugar production [4][5] - The percentage of sugarcane crushed for sugar in Brazil has also risen, indicating a shift towards sugar production over ethanol [4] - A projected global sugar surplus of 4.1 million metric tons for the 2025/26 season adds to the bearish sentiment in the market [3] India’s Production Outlook - India's sugar production is expected to rebound significantly, with a projected 19% year-on-year increase to 34.9 million metric tons for the 2025/26 season due to favorable monsoon conditions [5] - The cumulative monsoon rainfall in India has been reported at 937.2 mm, 8% above normal, contributing to expectations of a bumper sugar crop [5]

Core Viewpoint - The yen carry trade is expected to make a comeback due to the anticipated slower interest-rate hikes under Sanae Takaichi's leadership, which could attract traders back to borrowing the low-yielding yen to invest in higher-yielding currencies [1][2][4]. Currency Market Reaction - Japan's currency has depreciated approximately 2% against G-10 currencies this week, driven by expectations of Takaichi's pro-stimulus policies leading to a delayed timeline for the Bank of Japan's (BOJ) policy tightening [2][4]. - The yen is nearing a six-month low against the dollar, with market concerns about increased government spending and inflation under Takaichi's potential administration [4][6]. Interest Rate Expectations - Market participants have reduced their expectations for immediate policy tightening, with swaps indicating a 22% chance of a BOJ rate hike at the upcoming meeting, down from about 57% prior to the leadership vote [6]. - Etsuro Honda, an advisor to Takaichi, suggested that a rate increase this month would be premature, advocating for a more suitable timing in December [5]. Carry Trade Dynamics - Analysts believe that if Takaichi maintains her stance that a weak yen is not detrimental to Japan's economy and opposes rate hikes, the carry trade could resume, leading to further yen depreciation [8]. - Masayuki Nakajima from Mizuho Bank predicts that yen selling may accelerate, potentially pushing the currency towards 180 per euro [7].