Analysts expect a continued dollar-centric market where most G10 currencies move in tandem against the dollar, keeping dollar correlations high. However, they are bearish on cross-correlations (e.g., involving Sterling and Euro), anticipating greater divergence between non-dollar currencies, which presents an opportunity for investors.

For 30 years, Japanese firms retained profits instead of returning capital, accumulating huge cash and asset piles on their balance sheets. Now, the Tokyo Stock Exchange is pushing for buybacks and dividends, creating a powerful catalyst for value realization that is independent of new earnings generation.

Despite official statements against rapid currency depreciation in Japan and Korea, policymakers likely view a weaker currency as a beneficial stimulus. With negative output gaps and competition from China, the goal is not to reverse the trend but to manage its pace to avoid market disorder and US Treasury scrutiny.

North Asian economies, despite current account surpluses, exhibit balance-of-payments dynamics typical of deficit countries. This is caused by exporters holding dollars, domestic capital outflows, and foreigners hedging equity investments. This structural imbalance acts as a powerful headwind for regional currencies, overriding positive trade data.

J.P. Morgan's 2026 outlook is "Bearish Dollar, Bullish Beta," favoring pro-cyclical and high-yield currencies. They expect the dollar's decline to be smaller and narrower than in 2025 unless US economic data significantly weakens, shifting from the more aggressive bearishness of the previous year.

Buffett financed his massive investment in Japanese trading houses by borrowing in Yen at near-zero interest rates. This created a 'positive carry' where the high dividend yields (6-9%) paid for the costless debt, generating hundreds of millions in free cash flow annually. The yen-denominated debt also perfectly hedged the currency risk of the yen-denominated assets.

For years, Japan was a value trap: cheap companies with poor governance hoarded cash. The game changed when Prime Minister Shinzo Abe introduced stewardship and governance codes, creating a top-down, government-backed catalyst for companies to finally improve capital allocation and unlock shareholder value.

Japan's Takahichi administration has adopted a surprisingly expansionary fiscal stance. Instead of allowing the Bank of Japan to hike rates, the government is using fiscal spending to offset inflation's impact on purchasing power. This "high pressure" economic policy is a key driver of the yen's ongoing weakness.

J.P. Morgan expects gold to continue rallying while traditional haven currencies like the Yen and Swiss Franc weaken. The firm notes that option markets are not priced for this divergence, creating a value opportunity for traders to position for gold's relative strength against these specific fiat currencies.