The bias in the USD/JPY is neutral according to analysts at MUFG Bank. They expect the pair to trade in the 105.00-112.00 range over the next weeks.
Key Quotes:
“Our central thesis of the US dollar being undermined by the global reflation theme is likely to mean a gradual rise in yields globally that should equate to a weaker yen. However, the scope for yen depreciation versus the dollar is limited of course given that view and we see yen depreciation coming more versus the non-dollar crosses. A neutral bias reflects the reality though of risks in both directions. As mentioned here before, the correlation of daily percentage changes in USD/JPY and US yields is the strongest within the G10 space and on occasions when US 10-year yields jump, we will likely see the same in USD/JPY – but ultimately these should then fade as US yields either stabilise or reverse lower.”
“The success of Fed guidance will also be important for the extent in which Japanese investors hedge their purchases of US portfolio securities going forward.”
“The current increased investor fears over the threat of inflation may also come to the benefit of the yen over the coming months. A look at the change in 10yr breakeven rates over the past 12mths indicates that expectations on future inflation have been far more muted in Japan than elsewhere.”
“Over the near-term, those inflation expectations may well be further curtailed by expectations of a delayed rebound in GDP growth in Japan.”
“Over the short-term though, the global reflation theme should help keep the yen weak although we would expect that weakness to be more evident versus non-dollar currencies.”