Fed in focus for USD/JPY - MUFG

USD/JPY remained around 113-114 this week as the US-Japan yield gap widened and after USD/JPY surged from 104 to 114 in November as noted by the Derek Halpenny, European Head of GMR at MUFG.

Key Quotes

“The upper bound for USD/JPY will be 116 in December, in our view. Overheated USD strengthening pressure has been easing, although the US stock market is still on the rise. We still do not realistically expect expanded fiscal spending in the US, but do think some free trade agreements may be altered. US Treasury yields could rise further, depending on the president-elect’s plans for funding infrastructure investment with increased US T-bill issuances.”

“The recent JPY selling pressure may turn passive as foreign exchange hedging costs rise as the US-Japan yield gap widens. The Fed will probably raise the policy rate next week. We will be watching for any changes in Chair Yellen’s policy stance, especially if such changes could stoke further JPY selling. That said, we do not expect the Fed to change its policy stance dramatically this month. Realistic US policy may support USD/JPY remaining near the recent range. We do not expect the BoJ’s December Tankan survey to provide ammunition for further monetary easing.”