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The bias in the USD/JPY is neutral according to analysts at MUFG Bank. They expect the pair to trade in the 105.00-112.00 range over the next weeks.  

Key Quotes:

“Our central thesis of the US dollar being undermined by the global reflation theme is likely to mean a gradual rise in yields globally that should equate to a weaker yen. However, the scope for yen depreciation versus the dollar is limited of course given that view and we see yen depreciation coming more versus the non-dollar crosses. A neutral bias reflects the reality though of risks in both directions. As mentioned here before, the correlation of daily percentage changes in USD/JPY and US yields is the strongest within the G10 space and on occasions when US 10-year yields jump, we will likely see the same in USD/JPY – but ultimately these should then fade as US yields either stabilise or reverse lower.”

“The success of Fed guidance will also be important for the extent in which Japanese investors hedge their purchases of US portfolio securities going forward.”

“The current increased investor fears over the threat of inflation may also come to the benefit of the yen over the coming months. A look at the change in 10yr breakeven rates over the past 12mths indicates that expectations on future inflation have been far more muted in Japan than elsewhere.”

“Over the near-term, those inflation expectations may well be further curtailed by expectations of a delayed rebound in GDP growth in Japan.”

“Over the short-term though, the global reflation theme should help keep the yen weak although we would expect that weakness to be more evident versus non-dollar currencies.”

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