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Robert Rennie, Research Analyst at Westpac, notes that the sharp rise in risk aversion over the last week has seen the ¥ strengthen and they see risks that markets will remain risk averse into September as US tariff action develops, the Italian budget becomes more of a focus and the Fed raises rates.

Key Quotes

“This should be “enough to keep USD/JPY in a 110/112 over the next few weeks” or so.”

“However, we still hold out hope for higher levels. The Fed is likely to deliver hikes in Sep and Dec. The most recent settlement period from the BoJ did show a sharp uplift in the pace of increase of JGB purchases emphasising how strong the commitment is. Thus we see still higher levels in the months ahead.”