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MUFG Bank remains as USD/JPY higher, seeing a range of 130-138.50 in the coming weeks.

  • Risk aversion and the general tightening of financial conditions remain a key catalyst for the continued strength of the US dollar. The historical norm for USD/JPY to fall in these market conditions will only return if risk aversion begins to drive down US yields. This has not been the case so far this year and therefore the correlation of risk with the JPY is less robust. We do not expect this to change in the short term and therefore maintain a bullish bias on USD/JPY direction in the short term. High US rates and JPY appreciation should limit the extent of JPY depreciation from here.

MUFG on the Japanese authorities:

  • This month’s statement from the BoJ/MoF/FSA expressing concern over JPY depreciation may act to slow or limit JPY depreciation to higher levels closer to 140.00. In addition, lingering inflation concerns and the limited possibility of US rates correcting lower should support USD/JPY, particularly if rate volatility abates and US bond purchases by Japanese investors are beginning to recover.

And, the risk of a higher USD/JPY is…. intervention:

  • The main downside risk for USD/JPY over the coming month would be that the extent of JPY weakness finally triggers a joint policy response from the government and the BoJ. But the extent of the BoJ’s JGB buying last week suggests that action to limit yen weakness is unlikely in the near term. A deeper correction in US rates to the downside is another major downside risk and while we expect this to materialize later, it is premature to expect this in the near term as the Fed is primarily focused on tackling upside inflation risks.

Daily candles, USD/JPY:


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