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Bank of America Merrill Lynch (BofA) analysts are out with a quick note on their reasoning behind the USD/JPY pairing’s strength compared to broader markets.

According to BofA analysts, the Fed’s current tightening policy is bolstering the US Dollar, while Japan is seeing a record rate of outbound M&A, resulting in a net selling of the JPY. Foreigners are also increasing their selling of Japanese equities, while Japanese investors are stepping up their purchases of foreign equities, and both actions also pile on net short Yen activity, and a general lack of short JPY positions through the broader markets is further boosting the USD/JPY pairing. As the analysts noted, “[the USD/JPY]may continue if trade tensions rise only gradually, until the market starts pricing in slower US growth and/or Fed hiking path”.