The USD/JPY pair is trading back under 130.00 after being unable to break above 131.00. Analysts at MUFG Bank have a neutral bias on the pair and see it trading in the range 127.00-134.00 over the next weeks.

We may have entered a short-term equilibrium zone

“It is important to stress that the BoJ speculation has played a secondary role when the overall drop of 20 big figures in USD/JPY is considered. The global fundamental backdrop and the intervention by the Japanese authorities combined to give a powerful impetus for a correction lower. A turn in US inflation to the downside, the approach of the expected end to monetary tightening outside of Japan and the collapse in energy prices are all JPY-supportive developments.”

“YCC policy speculation may pick up again. The primary candidates to take over from Governor Kuroda (Amamiya, Nakaso & Yamaguchi) are all expected to move away from ‘Abenomics’ (to differing degrees) which means speculation could well pick-up later in Q2.”

“We have narrowed the range for USD/JPY in the month ahead and assume the big move over the last three months will result in some narrower range trading. An announcement that Hirohide Yamaguchi would be put forward to the Diet could spark a bigger FX move as abrupt YCC changes would be brought forward by the markets. That would imply a sharper move to the downside than expected. To the upside, a 50bp hike by the Fed and a more hawkish FOMC communication would see a larger than expected move to the upside.”

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