Analysts at MUFG Bank see the USD/JPY pair with a neutral bias and expect it to trade in the 103.00-111.00 range over the next weeks. They point out that like US yields, the US dollar may well enter a phase of range-trading and consolidation before more notable depreciation takes hold later in the year.
Key Quotes:
“Last month, we turned neutral on the USD/JPY outlook after a long period of bearishness – the period since last month has seen USD/JPY first advance to a high of 110.97 on 31st March before reversing sharply. USD/JPY is now trading lower than a month ago primarily reflecting the decline seen in UST bond yields. After gaining 34bps during March, the UST bond 10-year yield has declined 12bps in April. Our own correlation analysis indicates that USD/JPY is the most sensitive currency pair to movements in US yields.”
“Japan-specific developments would have the potential to disrupt this correlation and while there are risks we do not see anything on the horizon that could drive JPY direction independently of developments abroad and in the US specifically. A new COVID wave of infections is hitting Japan as we write with the 7-day average of daily infections up from around 1,000 in early March to 4,000 now. The potential for further restrictions hitting economic growth is rising and this could have implications for the currency. However, with the BoJ scope for easing policy limited, we see the net impact of this risk as deflationary and hence for Japan, higher real yields help provide support for the yen. In essence, as history shows, weaker growth can actually provide support for the yen.”
“With limited prospects of monetary easing by the BoJ we doubt the yen will be influenced much by domestic factors specifically. Of course portfolio flows will remain important but the shape of the US yield curve is more geared toward greater hedged outflows from Japan as we start the new fiscal year.”
“Yield consolidation in the US should mean USD/JPY consolidation too and hence our neutral bias for the outlook.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD extends losses on dovish remarks from ECB members, trades near 1.0780
EUR/USD continues its downward trend for the fourth consecutive day, driven by a stronger US Dollar influenced by the hawkish market sentiment surrounding the Federal Reserve and expectations of prolonged higher interest rates.
GBP/USD trades sideways above 1.2600 amid quiet session
The GBP/USD pair trades sideways around 1.2622 during the early Friday. The market is likely to be mute in light trading on Good Friday. Later in the day, the US Core Personal Consumption Expenditures Price Index will be released.
Gold ends Q1 2024 at record highs, what’s next?
Gold is sitting at an all-time high of $2,236, lacking a trading impetus amid holiday-thinned conditions on Good Friday. Most major world markets, including the United States are closed in observance of Holy Friday, leaving volatility around Gold price highly subdued.
Ripple's move above this key level could trigger nearly 50% rally for XRP
Ripple price has overcome a critical resistance level and flipped into a support floor on the weekly time frame. This development happened while XRP tightly consolidated for roughly 250 days. As this coiling up comes undone, investors can expect XRP to kickstart a massive rally.
Will they won’t they cut rates is the question of Q2?
There has been some significant push back from Fed and Bank of England members around the timing of rate cuts, and the Bank of Japan still haven’t physically intervened in the FX market to stem yen weakness although they are threatening to do so.