Where to now for USD/JPY?

What is the outlook for the currency pair as it continues to keep more rangebound since last week?

“With the general election now out of the way, the market’s focus for USD/JPY shifts squarely to the prospect of FX intervention. Our intervention watch‑zone remains unchanged at 157-160. While intervention concerns are likely to cap upside in USD/JPY, structural yen‑selling flows mean such caution alone is unlikely to halt depreciation, and the probability of actual FX intervention remains high.”

In looking at the more structural outlook, the firm notes that the yen remains unfavourable even if there are some supportive elements in the short-term:

“Over the longer term, yen‑weakening risks remain firmly in place. But in the near term, the combination of potential intervention and scope for the market to further price in BOJ hikes at the March and April meetings skews the risk‑reward for USD/JPY to the downside. Ahead of the fiscal year‑end, current spot levels offer Japanese corporates a reasonably attractive opportunity to add to their yen‑buying hedge positions.”

Similarly, ANZ also argues for dip-buying in USD/JPY on potential opportunities moving forward:

“We view levels below 152 as a good entry point for new USD/JPY long positions. While OIS pricing indicates nearly 60 bps of hikes from the BOJ this year, measures such as energy subsidies and the consumption tax are expected to moderate inflation, reducing the need for aggressive tightening. As expectations for further hikes diminish, the yen will likely weaken.

The carry for USD/JPY remains attractive, particularly as the USD is likely to stay firm in February on seasonal drivers and positive economic data.”