MUFG Research warns of a scope for an an abrupt correction lower in USD/JPY.
"The scale of JPY selling is looking excessive and while a break through 115.00 is still possible the risks of an abrupt correction lower are increasing," MUFG notes.
"As can be seen below, the 1mth percentage change in USD/JPY divergence with the percentage change in DXY is at an extreme that looks unsustainable. A degree of USD/JPY correction lower and DXY higher tends to be the end result when these extreme divergences in performance emerge. In June 2020, a technical break of 110.00 fuelled the divergence, similar to the technical break of 112.00 on this occasion," MUFG adds.