MUFG Research discusses USD/JPY outlook and maintains a bearish bias, expressing that via holding short USD/JPY as its ToTW targeting a move towards 103.80.
"We have highlighted frequently of late the very low levels of correlation for USD/JPY and equity market performance – not entirely unusual, once markets move out of extreme risk on/risk off the JPY correlation tends to weaken. However, with correlations with other G10 currencies unusually strong, the result has been this growing divergence between general USD performance and USD/JPY performance. We may now well have entered a phase of “catch-up” with USD/JPY falling, to move more into line with the DXY performance. The chart below shows the scope for more declines ahead based on where DXY is trading," MUFG notes.
"On Friday, we published a short USD/JPY trade view based on this given the move that took place on Friday. Furthermore, if risk-on fades and equity markets correct lower and the dollar rebounds, USD/JPY is unlikely to advance much higher," MUFG adds.