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Analysts at MUFG Bank see the USD/JPY pair moving with a bearish bias for the next weeks. They point out the underlying trend in real yield spreads between the US and Japan remains in favour of a lower USD/JPY.

Key Quotes:

“Market expectations for the Fed to maintain loose policy well into the economic recovery are helping to dampen upward pressure on US yields from the ongoing rebound in market-based measures of inflation expectations. We continue to expect the Fed to strengthen forward rate guidance later this year which could include signalling they have become more tolerant to allow a temporary inflation overshoot. It should help to keep downward pressure on real US yields and the USD. The Fed could set the stage for the upcoming change in forward guidance at the upcoming Jackson Hole symposium on 27th and 28th August.”

“We do not expect USD/JPY to move higher on a sustained basis even if there is an overdue correction lower for risk assets in the month ahead. While the USD could rebound more broadly if risk assets correct lower, the yen should continue to hold its ground. In prior months as the USD weakened sharply against other G10 currencies, USD/JPY was little changed. A resurgence of COVID cases heading into the autumn and/or evidence of a loss of global growth momentum after the sharp initial bounce back could prove more challenging in the month ahead.”