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Economists at MUFG Bank highlight a number of factors that suggest caution is warranted over the  scale of further moves higher in USD/JPY.

Key quotes

“The downward trendline from the 2015 peak and the peak last year comes in between 109.00-109.30 over the coming weeks and is likely to be tough to break.”

“TFX retail margin flow data indicate heavy selling into this rally which could become a bigger influence on the approach of this technical level and the psychologically important 110.00 level.”

“If US yields do rise further, we believe two factors would unfold that would limit the upside. The first would likely be increased equity market selling, which would go global thus increasing risk aversion and bringing back some support for JPY. Then in addition, the Fed would likely become more explicit in countering further moves higher in yields.”

“If as we expect, global growth picks up, the huge US financing needs coupled with the widening US current account deficit plus the still deeply negative level of real yields will see this US dollar rally peter out and renewed US dollar depreciation will unfold.”