MUFG Research maintains a bearish and short USD/JPY exposure in spot targeting a move towards 104, with a stop at 109.
"We still favour a short USD/JPY trade idea. The Fed’s aggressive policy response has helped to reduce the risk of the USD outperforming other traditional safe haven currencies such as the JPY and CHF. It has already resulted in the size of the Fed’s balance sheet expanding rapidly to almost USD7 trillion. The recent improvement in global investor risk sentiment as financial market strains have eased have put a dampener on JPY performance more broadly though," MUFG notes.
"We expect the recent improvement in risk sentiment to be tested by depression like economic data releases and slow progress in reversing lockdown measures. The JPY stands to benefit the most if financial market conditions deteriorate again. The BoJ’s latest policy easing announcements are not sufficient to reverse the JPY strengthening trend on their own," MUFG adds.