USD/JPY has traded in a relatively narrow trading range between 109.00 and 111.00. Economists at MUFG bank have flipped their bias back to bearish after last month running a bullish bias.
Risk aversion escalates fuelled by a worsening of the situation in China
“We do not expect the China property uncertainty to morph into something more severe, but risk aversion will remain elevated and risks are skewed to the situation worsening over the near-term. Positioning data indicates there remain substantial short yen positions in the market and if there is a liquidation of positions on risk aversion, the yen would likely outperform.”
Notable shift in the DOTs plot not expected
“Given the global outlook is that bit more uncertain with growth expectations being lowered and given the flow of economic data has been somewhat disappointing in the US, the FOMC is unlikely to spring another DOT shock. That could prove disappointing for those with long USD/JPY positions and could mean the recent signs of a pick-up in foreign bond purchases from Japan are more subdued.”
Conditions domestically slowly begin to turn less favourable for a weaker yen
“We believe the prospect of additional fiscal stimulus is unlikely to have any great impact in weakening the yen given the bigger picture is clear – the shift in the political landscape could well be taking us away from ‘Abenomics’ which we see and helping to keep the yen underpinned.”