Credit Agricole CIB FX Strategy Research notes that a more cautious Fed rhetoric of late and lacklustre price action in UST yields have kept USD/JPY confined to a tight range of late.
“This much could mean that the pair would continue to follow the broader swings in the USD TWI in the near term. Evidence of returning economic resilience from next week’s US economic data (non-farm payrolls and ISM) could help USD/JPY recover some lost ground but it may not be enough to trigger a sustained uptrend,” CACIB argues.
In addition, CACIB notes that political risks seem to be lingering in Japan after the Tokyo local election, which saw support for the ruling LDP party collapsing to record lows.
“While we expect PM Abe to keep his job after September and maintain a bearish view on JPY in the coming months, market doubts about the future of Abenomics may weigh on Japanese stocks and overall sentiment, and discourage aggressive selling of the currency for now,” CACIB adds.
Source: Credit Agricole CIB Research
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