MUFG Research discusses the JPY outlook and suspects that JPY sellers might not be inclined to re-establish short positions by buying the dip in USD/JPY around current levels.
"After last week’s sharp sell-off of the yen as COVID-19 risks remained front and centre there was understandable speculation that the yen may have been losing its safe-haven status. However, as quickly as USD/JPY broke sustainably 110.00 to set a high of 112.23, USD/JPY has reversed back to down. The key point being that last week even though COVID-19 was an obvious risk, the S&P 500 hit a record high last Wednesday – the very day USD/JPY broke higher," MUFG notes.
"But the equity market declines this week has made clear again that the yen remains the go-to safe-haven currency. We believe the sharp drop in USD/JPY this week will make yen sellers more wary of re-establishing that trade. In the last eight episodes of ‘risk-off’ (>-3% S&P 500), the yen has consistently been the top performer," MUFG adds.