MUFG Research discusses USD/JPY outlook and flags a scope for 110.00 to be tested but warns a sustained break above that level would mainly depend on the progress of the US-China Phase One trade deal.
"We think some caution should be exercised in this optimism as the positive official data could be reflecting some seasonal factors as well as a temporary boost from additional monetary stimulus. If this reflects a broader and more sustained readjustment to the current level of trade tensions between the US and China, and is followed by more positive data, we could see USDJPY break higher towards 110.00," MUFG notes.
"More important for determining whether USDJPY will break and persist above the 110.00 level concerns the progress of the US-China Phase One trade deal. Over the weekend Axios reported that a potential trade deal between the two countries was “stalled because of Hong Kong legislation”. This follows comments by China’s Foreign Ministry last week that US President Trump’s signing of the Hong Kong Human Rights and Democracy reflecting severe interference in domestic Chinese political affairs and that retaliation would follow. USDJPY upside beyond a possible break of 110.00 will remain limited until there is more clarity on the nature and extent of retaliation and whether a deal is still likely in the near future," MUFG adds.