Synopsis:

MUFG remains bullish on the Japanese yen (JPY) despite the BoJ’s dovish tone. They argue that external dynamics—especially narrowing global yield spreads and undervaluation—will continue to support the JPY, even after USD/JPY's rebound above key technical levels.

Key Points:

• Dovish BoJ Not a Game-Changer:
  The recent BoJ caution on rate hikes hasn’t invalidated the broader bullish JPY view. USD/JPY continues to respect 140.00 as a critical support, as seen previously in Sept 2023 and Dec 2023.

• Global Rate Convergence to Support JPY:
  MUFG expects a further narrowing of yield spreads between Japan and other major economies as the Fed, ECB, BoE, and PBoC cut rates in response to deteriorating global growth.

• Fed Outlook Still Pivotal:
  The April NFP print reduced odds of a June Fed cut, but incoming data could change the calculus. The FOMC meeting next week will be closely monitored for a pivot signal.

• Undervaluation Remains a Factor:
  The JPY remains deeply undervalued vs the USD, which is likely to remain a political pressure point in US-Japan trade negotiations. This adds a strategic incentive for Japan to avoid excessive yen weakness.

Conclusion:

MUFG maintains a constructive stance on the JPY, viewing any dips as temporary and technically supported. With global central banks expected to ease while the BoJ stays cautious, external macro dynamics—not BoJ policy alone—are seen as the key JPY drivers, pointing to gradual appreciation ahead.