JPY: Don't get discouraged about the yen – ING

 USD/JPY has been on a rollercoaster ride since the start of the week. The initial reaction to the tech-led equity selloff was a perfect recipe for a Japanese Yen (JPY_ rally: risk-off, declining USD rates. The Bank of Japan rate hike on Friday and a still unbalanced positioning were perhaps providing an extra incentive to JPY bulls, ING’s FX analysts Francesco Pesole notes.

USD/JPY to retest of 160.0 in the near term

“The exploration below 154.0 did not last long though, and the broader dollar rebound – which accelerated as universal tariffs retook centre stage – has taken USD/JPY back to the 155.50-156.0 area. This is again a testament to the perceived correlation between US protectionism and a more hawkish Fed, which has large repercussions on the rate-sensitive JPY.”

“Still, there are some positive takeaways for the yen from yesterday’s price action. As detailed in the USD section above, the dollar is not attractive as a safe haven in an equity selloff. As US sentiment may sour further from the combined impact of AI stocks revaluation, higher for longer Fed rates and risks related to US protectionism, there should be more opportunities for the yen to outperform, especially in the crosses.”

“We also see risks to the upside for JPY rates as we think markets underestimate the BoJ rate hiking cycle by some 25-30bp. If another rise in US yields keeps encouraging USD/JPY buyers below 155.0, EUR/JPY is probably looking at some downside potential, with a retesting of 160.0 in the near term a tangible possibility.”