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USDJPY: Range trade between 119 and 121 - Nomura

FXStreet (Delhi) – Research Team at Nomura, suggest that after temporarily breaking 117 on 24 August, USD/JPY has been trading within a narrow range from 119 to 121 and before the October FOMC meeting and the second BOJ meeting in October (28 and 30 October respectively), USD/JPY may not break its recent high and low.

Key Quotes

“Deterioration in risk sentiment has been pressuring USD/JPY, but we see three factors limiting the downside risk to USD/JPY. First, market expectations for BOJ easing into the 30 October meeting may rise further if USD/JPY and the Nikkei trade weakly. Given weaker economic fundamentals, a decline in USD/JPY and equity prices will likely increase market expectations for BOJ easing in October, which should limit USD/JPY depreciation ahead of the second October meeting.”

“Second, dip-buying demand among Japanese investors, especially pension funds and retail investors, remains strong.”

“Third, Janet Yellen’s speech confirmed that the likelihood of a December lift-off remains high. The market is still pricing a below 50% probability of lift-off by year-end, which suggests USD appreciation is likely as the market starts pricing a higher possibility.”

“At the same time, the short-term acceleration of USD/JPY appreciation will automatically lower BOJ easing expectations again. Japanese investment in foreign assets may also slow again, as JPY weakness helps pension funds to reach their target portfolios without actual purchases.”

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