USD/JPY: Below 104.54 likely to drop under 100.00 – CitiBank

Analysts at Citibank warn that the USD/JPY pair could drop below 100.00, it the yield differential between US and Japanese bond continue.  

Key Quotes:

“China said it will impose retaliatory tariffs against about $75 billion worth of U.S. goods. The US president Trump then said he would raise existing duties on $250 billion in Chinese products to 30% from 25% on Oct.1 and tariffs on another $300 billion of Chinese goods, which start to take effect on Sept.1, will not be 15% instead of 10%. Escalating trade tension lead money flow into JPY.”

“The Fed Chair Powell’s speech in Jackson Hole implied series of downside risks but did not mention any measures. The view was seen as leaning to dovish.”

“Any further BoJ ease will be reactive to ECB/ Fed easing and therefore likely following JPY strength. Moreover, supports to Japanese activity may also stem from upcoming sporting events including the Rugby World Cup and 2020 Olympics. As such, a continuing drop in UST-JGB yield differentials would likely point to a move back to $/JPY 100 or lower.”

“USD/JPY showed the bearish signal last Friday. We expect the pair may drop again with important support at 104.54-87, and may test lower at 99.02-54 if the support pivot is broken.”