The risks to the USD / JPY pair are on the downside, according to analysts at MUFG Bank. They see the pair trading between 106.00 and 112.00 over the next few weeks.
“Positioning in JPY according to weekly IMM data has become extreme. Based on a z-score analysis spanning a 2-year window, the current short position among leveraged funds and asset managers and institutional investors is close to 2 standard deviations from the mean – the last time this happened in November 2015. This marked a time when the USD / JPY peaked at levels above 120.00 before dropping sharply in 2016. We are not suggesting this scale of rally for the JPY now (above 120-100) but rather the current shorts level is at an all-time high and if risk aversion were to intensify we may well see a sharp downward correction on the ‘USD / JPY.
“More difficult conditions in the financial markets due to a deteriorating economic outlook are also accompanied by the limited monetary policy options available to the BoJ, which tend to keep inflation expectations much higher. moderate in Japan than in the rest of the world. “
“We therefore consider that we are taking a bearish view for the USD / JPY in the near term. The main driver of any move will inevitably be global risk conditions rather than domestic developments. Even if there is no correction. Noticeable in the equity market, the sharp decline in UST bond yields still leaves the USD / JPY vulnerable to a downward correction as a key catalyst for higher USD / JPY reversals. UST bond yields at 10 Year (1.28%) is at levels last seen in February, when USD / JPY traded below 106.00. “