Bank of America Global Research discusses JPY technical outlook and sees correction risk rising, but remains long term bearish on JPY.
"Further yen weakness in the short term appears challenging as USDJPY approaches 130 and 135 and we for a correction. However long term, a weaker yen may have only just begun. Of course, the yen is oversold with USD/JPY's monthly RSI at 82.74. This compares only to its highest monthly RSI ever ending December 2014 at 82.80 with spot at 119.48. Then, spot drifted higher for six months into the 125s as RSI diverged and a top formed. A drift or sharp reversal is to be watched for in Q2-Q3. This month there is a TD Setup 9 sell signal however of 10 signals since 1971 just 5 resulted in reversals (mixed conviction history)," TD notes.
"There is also the 130 psychological resistance level. This level hasn't mattered much in the past but may with 10Y and 30Y UST near 3%. Rather 135 was a notable 2002 peak. One possibility for a pivot in USDJPY is if residual momentum in Q2 starts fading as spot breaks 130 and a top or bearish reversal occurs prior to 135," TD adds.