Risks on the USD/JPY pair are titled to the downside, according to analysts at MUFG Bank. They see the pair trading between 106.00 and 112.00 over the next weeks.
“JPY positioning according to the weekly IMM data has become extreme. Based on z-score analysis covering a 2-year window, the current short position amongst Leveraged Funds and Asset Managers & Institutional Investors is close to 2 standard deviations from the average – the last time this happened was back in November 2015. That marked a point when USD/JPY peaked at levels over 120.00 before heading sharply lower in 2016. We are not suggesting that scale of rally for the JPY now (above 120 to 100) but more that the current level of shorts is at an historical extreme and if risk aversion was to intensify, we could well see a sharp correction lower in USD/JPY.”
“More challenging financial market conditions on the back of a worsening economic outlook also brings with it the limited monetary policy options available to the BoJ that tends to result in inflation expectations remaining far more muted in Japan relative to the rest of the world.”
“So we take are taking a bearish view for USD/JPY over the short-term. The primary driver of any move will inevitably be global risk conditions rather than domestic developments. Even if there is no notable equity market correction, the sharp move lower in UST bond yields still leaves USD/JPY vulnerable to a downside correction as one key catalyst for the move higher in USD/JPY reverses. The 10-year UST bond yield (1.28%) is at levels last seen in February when USD/JPY was trading below 106.00.”
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.