Despite the elevated geopolitical risks that in times gone past might have lifted the yen there are factors that have prevailed that economists at MUFG Bank believe will continue to prevail and help lift USD/JPY further over the short-term.
“The technical backdrop is very much favouring USD/JPY higher. We have cited the big technical resistance from the long-term downtrend from the highs in 1990 and again in 2015 that could prove strong resistance. That level came in at around 117 and the clear break of that level and the momentum is very much supportive for USD/JPY. This technical break should open up a move to the 120-level.”
“We expect the Fed to signal more monetary tightening than signalled in December (6 hikes versus 3 in Dec) which will help keep USD/JPY underpinned for now.”
“Japan’s trade position is set to deteriorate further. Energy imports make up close to 25% of total imports and the price increases in global markets for crude oil will equate into a larger trade deficit over the coming months.”
“There is increased anticipation that the profound change in the global inflation outlook will trigger a fundamental shift in Japan with the ‘deflation mindset’ often referred to be Governor Kuroda being altered. With the BoJ signalling no change in monetary policy any time soon, this could mean a decline in real yields in Japan, thus helping to fuel further yen depreciation.”
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