JPY strength likely to be short-lived – UOB

Analysts at UOB Group are expecting USD/JPY to stay above 110 with the BOJ unlikely to contemplate any policy change in the near term, recent strength in the JPY is likely to be short-lived.  

Key quotes:

“However, price action is likely to be volatile as the rhetoric is digested and eventually downplayed, as it did during Jan – Feb when “BOJ tapering” first surfaced. Immediate and escalating concerns over global trade war with its negative impact on Japanese exports should keep the JPY biased on a weak note.”

“Since the first major block of USChina tariffs went live in mid-June, the USD/JPY has been tracking the US Dollar Index (DXY) higher in increasing correlation.”

“A revival of the US 10-year Treasury yield towards 3% after a month-long slumber between 2.80% and 2.90% should provide an additional lift for USD/JPY.”

“The JPY weakness also comes in a period where short JPY positions are gradually being rebuilt after being squeezed in 2Q18.”

“Overall, we reiterate our view of mild JPY weakness ahead and forecast USD/JPY at 110 in 3Q18, 111 in 4Q18, 112 in 1Q19 and 113 in 2Q19.”