USD/JPY’s rally is at risk of running out of steam. Year-end foreign bond buying might have fuelled some of this move higher and that is unlikely to be sustained while the scale of the drop in US yields still points to downside USD/JPY risks, economists at MUFG Bank report.
JPY weakness may not be sustained
“The scale of foreign bond buying in recent weeks ahead of the end of the fiscal year is unlikely to be sustained going forward and hence one feature of support for USD/JPY may fade as we move into April. Even if the macro backdrop favours buying it will unlikely be on the same scale.”
“In addition, the substantial increase in JPY short positions amongst Leveraged Funds could be a catalyst for a retracement lower in USD/JPY if the move to the upside begins to fade.”
“US yields could still grind higher from here but USD/JPY has already jumped by more than implied by short-term yields and hence the influence on lifting USD/JPY further from here is likely to diminish.”