USD/JPY: Close below 130.41 to open doors to 126.36 – Rabobank

The USD/JPY is trading around 130.60/70, around the same level it closed on Monday. Earlier it bottomed at 129.49, the lowest level since early June. Analysts at Rabobank warn that a daily close below 130.40 could trigger more losses toward 126.40.

Still hawkish Fed is likely to limit to extent of further near-term downside

“The BoJ is due to meet again this month, on January 18. Given the tweaks made to its yield curve-control policy last month, there is a greater sense of anticipation that further adjustments could be forthcoming between now and the end of Governor Kuroda’s tenure in April and potentially as soon as this month. In the past 5 days, the JPY has appreciated by over 2% vs. the USD suggesting that the speculators are already positioning for a more hawkish outcome from the BoJ later this month. Implied market rates are pointing to a rate hike from the BoJ into positive territory within a 6 month view. Before it raises rates, however, the BoJ could first inject greater flexibility into its YCC policy. The market is likely to be disappointed if BoJ policy makers offer nothing new on the policy front this month.”

“USD/JPY has already fallen back substantially since its highs near 151.95 in late October. This factor combined with the still hawkish Fed is likely to limit to extent of further near-term downside in the currency pair. That said, the currency pair is currently trading close to near-term support at the May low of 130.41. A close below would open up scope for a fall to the May low around 126.36.”