Bank of America Global Research discusses USD/JPY outlook in light of its expectations for Japan's basic balance of payments to recover into the fall season.
"Japan's basic balance of payments is likely to recover into the fall. The current account likely bottomed in April with a sequential improvement in May as the decline in exports slowed, while imports remained depressed, due to low oil price and weak domestic demand. A likely outward FDI slowdown could offset a slowdown in income surplus for the time being, leading to a recovery in Japan's basic balance of payment into the fall.
A potential recovery in Japan's basic balance of payments would keep JPY's relative safe haven status and cross-JPY sensitive to risk assets. With strong dip-buying interests in US equities, we think USD/JPY would likely remain more stable against global risk, but seem vulnerable to risk factors that impact US equities, including the US presidential election and the pandemic risk in the US," BofA notes.
"Forecasts: USD/JPY to grind lower. We expect JPY to rise once the equity rally loses momentum. We revise our September forecast from 102 to 104 but we maintain our range forecasts (100-113) and year-end target (103). We expect USD/JPY to test 100 in 3Q20-4Q20," BofA adds.