Analysts at MUFG Bank, see the USD/JPY pair with some bullish potential. They expect the pair to trade over the next weeks in the 107.00-112.00 range.
“Risk appetite is favourable and with major central banks either expected to ease or already have eased, we see favourable monetary conditions continuing for now. FX volatility continues to fall – USD/JPY 6mth implied volatility fell to a new record closing low of 5.2975% on Friday with further declines likely. These conditions are certainly conducive to greater risk-taking and Japanese investors could be tempted into foreign markets on a more un-hedged basis than before. After a lull over the Christmas and New Year period, data last week revealed a sharp increase in outflows – in fact the latest data to week ending 10th January, revealed the largest one-week outflow to foreign bonds since September 2018 (JPY 2,322bn).”
“The long-term downtrend resistance line from the high in 2015 (125.86 June 2015) and the highs in 2018 has just been broken and could signal a more meaningful move to the upside.”
“While there is scope for yen weakness over the short-term, we are also mindful of the yen already being under-valued and of the fact that Japan continues to run very large current account surpluses and hence, over the medium to long-term, we hold a more constructive view of yen direction.”