The yen will likely remain range-bound against the USD around 120 in the year ahead due to countervailing factors, says Barclays Capital.
"On one hand, expected USD strength and portfolio rebalancing outflows are likely to exert upward pressures on USDJPY. On the other hand, already extended valuations, Japan’s improving current account, and unintended contractionary consequences of a weaker currency should limit further JPY depreciation," Barclays clarifies.
"The currency pair remains prone to a temporary sharp correction lower in reaction to deterioration in risk sentiment. Moreover, a bout of surprise monetary policy easing by various central banks around the world has already resulted in lower cross-yen rates, resulting in an appreciation of trade-weighted JPY since the beginning of the year, despite the move higher in USDJPY," Barclays adds.
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