Credit Agricole CIB Research discusses USD/JPY outlook and sees the pair stuck in the near-term before higher.
"USD/JPY is caught between the decline in the US-Japan short-term term rates differential and the rise in the US-Japan box yield spread. The deciding factors for the exchange rate are oil prices as well as equity prices. We have noted in the past that higher oil prices are a positive terms of trade shock for the USD and negative for the JPY and are more likely to push the Fed to hike rates faster than they are to push the BoJ in the same direction. In the coming week(s), oil prices will be sensitive to weather conditions in the northern hemisphere where the market is priced for a colder-than-usual winter due to a La Nina event," CACIB notes.
"So, the risks for energy prices (JPY) are skewed to the downside (upside) on the back of a milder winter. The US CPI data in the coming week will have an impact on the US curve and therefore USD/JPY. An upside surprise would lead to a rise in the exchange rate," CACIB adds.