USD/JPY: Most likely to remain in narrow trading range with risk titled to the downside – MUFG

Analysts at MUFG Bank, see the USD/JPY trading in the 104.00-110.00 range over the next weeks, with a bearish bias. They point out the recent range-bound trading should not been seen as a sign of the Japanese yen not being a safe-haven currency. 

Key Quotes:

“We see the potential for some correction in risk assets over the coming months, there is certainly a risk of increased JPY demand related to safe-haven flows.”

“We continue to struggle with providing solid fundamental factors that would result in a move higher in USD/JPY. Some sudden and dramatic improvement in US fundamentals that lifted expectations of a quick reversal in Fed monetary stimulus would be one, but that remains highly unlikely for now.”

“The base case scenario remains that absent of any notable correction in risk assets, USD/JPY will remain in a narrow trading range with risk skewed to the downside given the Fed’s monetary policy stance and the near full elimination of the US-Japan yield premium. Later in the year that could be reinforced by the Fed moving to some form of Yield Curve Control to reinforce expectations of low yields for longer. We expect nothing more from the BoJ.”