Yen’s Slow Routine Will Continue – MUFG

MUFG Bank Analysts, comes to par USD/JPY with a bearish bias for the next few weeks and expect it to trade in the 102.00 / 108.00 range. They point out that if their fundamental assumptions prove correct – a Biden win and a last-minute Brexit trade deal – the window for dollar strength will soon close.

Key statements:

“What is clear from the recent performance of currencies is that the Japanese yen continues to perform better in times of risk aversion. The high level of liquidity, the relatively high level of returns in real terms, but even in nominal terms, and Japan’s significant external surplus position continue to attract short-term investor flows in times of greater uncertainty. Global equity markets corrected lower from the highs on or around September 2, the current S&P 500 record. Since then, the yen has been the best performing G10 currency, gaining 0.7% versus to the dollar, the only G10 currency that advanced against the dollar during the period since then. ”

“We believe that the Japanese authorities’ task of implementing further easing will be more difficult in 2021, relative to the United States in particular. Our basic assumption for the depreciation of the US dollar in 2021 is that US real yields will fall further, driven by the toxic combination of deficit-financed fiscal stimulus that raises inflation expectations combined with higher QE from the Fed to limit nominal returns. Given that Japan’s margin to match the US is much more limited, the real yield spread is expected to move more in Japan’s favor. The slower grind of the stronger yen will continue. ”