USD/JPY: Bearish bias, underlining worsening of US dollar fundamentals likely to be reflected – MUFG

Analysts at MUFG Bank see the USD/JPY pair with a bearish bias. They expect it to trade in the 100.00-106.00 range over the next month.  

Key Quotes:

“We have lowered our USD/JPY range reflecting the shifting fundamentals that favour a weaker dollar more generally. We saw a sharp sell-off in USD/JPY in response to the election result in the US – an intra-day low of 103.18 on 6th November was however met with very strong demand for dollars resulting in a substantial rally. However, crucially, this does not appear to have altered the dynamics and the dollar remains under downward pressure.”

“Now with the US election uncertainty mostly behind us, the underlining worsening of US dollar fundamentals is likely to be more clearly reflected in USD/JPY performance.”

“Technically, we have reached an important level. Since COVID stuck in March, USD/JPY has failed to maintain levels below the 104-level for any notable period at all. Only once in March did USD/JPY close below the 104-level – since then there were two tests to the downside on an intra-day basis before in November we had two closes below 104.00. USD/JPY has recorded lower highs every month since June – so the clear downward trend remains intact and we suspect USD/JPY will soon breach the 104-level on a more sustained level for the first time since just before President Trump was elected in November 2016.”

“Escalating COVID in the US and the prospect of the Fed easing further at the December meeting will be good reason though to keep USD/JPY under downward pressure. The BoJ is unlikely to respond in any meaningful way to the decline in USD/JPY – as long as the move is orderly, opposition will be limited.”