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“USD/JPY correlation with US equities has actually been picking up recently – again suggesting that the mid-terms and what they mean for equity markets will set the tone,” note ING analysts.

Key quotes

“While it seems hard to repeat the 25% YoY growth in corporate earnings seen through this current earnings season in the US, we probably have to see much clearer signs of a slowdown or much higher Treasury yields to trigger a deeper corrections in equities. Our base case of the US economy moving into late cycle next year, including a gentle flattening of the US yield curve, keeps us mildly bullish $/JPY for the time being.”

“In Japan, last week the central bank cut their GDP and CPI forecasts and look unlikely to tinker with monetary policy ahead of the October 2019 VAT hike. Data out from Japan this week should see a healthy current account surplus and some positive cash earnings, supportive of the virtuous cycle of exports, corporate profits and employment. Global equity investors like Japan right now, but get paid to hedge JPY FX exposure. That’s why this story isn’t helping the yen.”