CIBC Research discusses the JPY outlook and maintains a bullish bias in the medium-term. CIBC targets USD/JPY at 106 in Q3.
The re-awakening of US-China trade concerns has caused cross-JPY pairs to test key support levels – including USDJPY. This has also led to increased FX volatility, as volatility is still over 1-vol cheaper than last year’s average. Should we see a sustained pick up in volatility, expect USDJPY to continue to press lower, as domestic retail investors repatriate overseas earnings and reduce short JPY positions," CIBC notes.
"In aggregate, the BoJ is more concerned about Japan’s near-term economic outlook, especially given the decline in exports and the looming consumption tax hike expected in October (from 8% to 10%). Nevertheless, and the consumption tax may prove to be less of an issue this time around. Domestic fundamentals will take a backseat to macro risk dynamics in the near- to mediumterm, which favour an outperforming JPY," CIBC adds.