USD/JPY: Broad weaker tone for the dollar will mean downward pressure – MUFG

The USD/JPY pair is moving with a bearish bias and will likely trade in the range 100.00-106.00 over the next month according to analysts at MUFG Bank. They point out the 100 level in USD/JPY would likely prompt opportunistic buying by Japanese investors.

Key Quotes:

“We have maintained our USD/JPY range and the short-term bias has also remained bearish. The lower range for USD/JPY does mean that the key 100-level is now in sight and that may well mean some greater demand on the downside with Japanese investors likely to provide support on any move lower. Yesterday, USD/JPY fell to 103.51 but at those levels renewed dollar demand emerged and that may well be the scenario over year-end and into 2021.”

“We expect the Federal Reserve this week to reinforce the prospect of a very dovish stance persisting throughout 2021 in order for the Fed to reinforce the perception of a new Federal Reserve policy approach consistent with its new monetary policy framework which was published on 27th August. The broad weaker tone for the dollar will mean downward pressure on USD/JPY persists beyond year-end, into 2021.”

“The escalation of COVID, if not curtailed, could mean another shock to the economy that will be deflationary. Political uncertainty and questions over ‘Abenomics’ won’t help either. These factors coupled with an ultra-dovish Federal Reserve and low yields globally will provide continued support for the yen. The move lower for USD/JPY may however slow for a time as the key 100-level prompts opportunistic buying by Japanese investors.”